Bank of America (NYSE:BAC) recently released word about its credit card, and the news is likely not as good as anyone—particularly Bank of America—would have hoped. This bank stock slipped just a bit in Friday afternoon’s trading, mostly because of higher-than-expected credit card net charge-off rates.
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Bank of America’s Master Credit Card Trust II saw the net charge-off rate go from July’s 1.89% to a new 2.13% in August. Climbing, but not yet as bad as it might be; back in August 2019, the card’s charge-off rate hit 2.49%. The good news is that consumers are still spending and at a pretty good clip. However, inflation is still working its will on the economy. Delinquencies, meanwhile, are also on the rise, albeit slowly; in July 2023, delinquencies were at 1.24%. August saw a rise to 1.26%, which is still below the August 2019 height of 1.57%.
This is somewhat of a good sign, but some other reports suggest that it’s less a function of “strong consumer spending” and more a function of “the consumer must spend more to get only slightly less than they used to.” A Washington Post report found that consumers are increasingly turning to credit cards and buy-now-pay-later (BNPL) services in order to shop for groceries. Even with many consumers turning to economizing measures—substituting certain cuts of meat for others and even substituting certain species—it’s often still not enough to match what customers can afford.
Meanwhile, Bank of America itself is considered a Moderate Buy by analyst consensus, with eight Buy ratings, six Holds, and two Sells. Further, Bank of America stock offers investors 21.79% upside potential thanks to its average price target of $35.13.
