Card Firms Warn Losses Coming With White-Collar Job Cuts

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It was a persistent fear in the credit-card industry: as forbearance programs ended and a government stimulus ran out, losses would climb. That hasn’t turned out to be true just yet.

Credit-card companiesSynchrony Financial,Capital One Financial Corp. andDiscover Financial Services said this week that delinquencies have remained low even as unemployment surged and the pandemic has prompted many states to restart shutdowns.

“That’s not going to last forever,” Discover Chief Executive Officer Roger Hochschild said in a telephone interview. “There’s real economic pain, on a broad basis, that will continue.”

With delinquencies low, some card companies said this week that they’re not expecting charge-offs to peak until next year. That’s partly due to the way credit-card companies account for losses. A customer has to be delinquent for six months before the card issuer can write off the loan.

And partly it’s because banks are now anticipating a second wave of unemployment, this time among white-collar workers, whose employers held off on job cuts in the early parts of the pandemic.

“They didn’t want to lay people off over Zoom, and they didn’t want people not to have health care,” Hochschild said. “You’re going to start seeing more and more of those white-collar layoffs.”

That’s left credit-card companies preparing for the worst. Discover, Capital One and Synchrony set aside a combined $8 billion in provisions to cover souring loans. Discover shares have slumped 39% this year, compared with a 37% drop for Capital One and a 36% decline for Synchrony — all greater than the 21% decrease in the S&P 500 Financials Index.

“We’ve got a delinquency inventory that has incredibly low delinquency embedded in it right now, and an unemployment forecast that’s suggesting that that’s got to normalize at some point,” Capital One Chief Financial Officer Scott Blackley told analysts on a conference call this week. “How that’s going to work out, I think, is going to really depend on what happens with stimulus.”

U.S. lawmakers approved unprecedented stimulus measures in the early days of the crisis, including $1,200 checks to individuals and an increase to unemployment insurance that’s set to end later this month. Treasury Secretary Steven Mnuchin is working with Congress this week on the next stimulus package.

Card-company executives remain worried about consumers’ ability to keep up with their bills as other lenders end their relief programs, especially for auto and mortgage payments.

“To do this nationally at the scale that we’ve done it, it’s pretty new to all of us,” Synchrony CEO Margaret Keane said in an interview this week. “As people lose out on additional stimulus and these bills come back online, are they able to handle their finances? I think that’s just another area to watch as we come through the next quarter.”

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