Consumers are consistently relying on credit cards for expenditures but are delaying the payment of their credit bills, a Wall Street Journal report highlighted. This trend indicates that top banks and financial services giants, including JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC), Bank of America (NYSE:BAC), and American Express (NYSE:AXP), will likely see an increase in their provisions for credit losses, which could impact their bottom-line growth.
Notably, these financial institutions reported an increased allowance for credit losses in Q3 due to the higher credit card loan balances.
Credit Quality Remains Strong
While the allowances for credit losses could continue to increase, the credit quality remains strong for these financial services companies. During the Q3 conference call, BAC’s management noted that its credit card net charge-off rate remained below pre-pandemic levels. Moreover, its asset quality on the consumer side remains solid, with 30 and 90-day consumer delinquencies remaining below the fourth quarter of 2019.
Further, write-offs and delinquency rates remained stable for AXP in Q3. Going forward, the company expects its delinquency and write-off rates to increase. However, it expects these rates to stay below pre-pandemic levels in Q4. On the other hand, Wells Fargo and JPMorgan Chase also witnessed an increase in the allowance for credit losses due to net charge-offs in the card business. However, their credit metrics remain strong.
Is It Good to Invest in Financial Stocks?
While credit quality remains strong, Wall Street analysts are cautiously optimistic about these financial institutions. Further, their average price target suggests limited upside potential over the next 12 months, lowering the attractiveness of these stocks.
