The Credit Card Debt Bubble Is About To Explode

Last week, The Juice took JPMorgan Chase (JPM) Jamie Dimon to task for his archaic, if not sexist stance on remote work. This week, we check the big dog on his brush off of mounting credit card debt and delinquencies among U.S. consumers. 

Dimon, and other bankers, love to use the word normalize. Because the pandemic threw everything for a loop, they’re always making pre-pandemic comparisons. Makes sense sometimes. Feels super convenient at other times. 

Like now. 

From JPMorgan Chase’s Q1/2023 earnings call: 

In terms of credit performance this quarter, credit costs were $1.4 billion, reflecting reserve builds of $300 million in Card and $50 million in Home Lending. Net charge-offs were $1.1 billion, up about $500 million year-on-year, in line with expectations as delinquency levels continue to normalize across portfolios.

While the banks might be fine, some cash-strapped and credit-abusing consumers clearly are not. The idea that JPM is building reserves to cushion themselves against bad loans amid rapidly increasing charge-offs tells you all you need to know. Similar story at Bank of America (BAC), who also increased reserves. Across the nation’s four biggest banks, consumer loan charge-offs increased 73% in Q1, as they wrote off $3.4 billion in bad debt during the first three months of the year. 

Here’s one visual representation of the situation via BofA’s Q1/2023 earnings presentation: 

• On credit cards at BAC, the 30-day delinquency rate hit 1.81% in Q1/2023, up from 1.26% a year ago. Ninety-day delinquencies increased from 0.62% to 0.90% over the same period. 
• At JPM, the 30-day rate went from 1.09% a year ago to 1.68% in Q1 of this year. The 90-day rate hit 0.83% in Q1, up from 0.54% last year. 

The Bottom Line: Since last year, The Juice has been tracking the story on the marriage between inflation, dwindling savings and increasing consumer debt. The reality is these stories don’t come to a head overnight. They take time to unfold – and eventually implode (or explode) – as households keep their finances together any way they can. One way is taking on more credit card debt. 

The writing on the wall says this house of cards will fall sometime soon. It’s 2023, maybe early-to-mid 2024 thing. When the banks say things are normal and healthy, they do America a disservice by attaching these adjectives to consumers. It’s the banks who are normal and healthy, flush with cash to set aside to save themselves when their most financially struggling customers eventually fall behind and some go bust.

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