The $1 Trillion Bubble About To Open A World Of Financial Hurt

It’s time for our quarterly update on mounting consumer credit card debt. 

The Juice first sounded the alarm on this bubble in April, 2022, when we simply said:

Credit cards, man. They’re bad news.

Around that time, the big banks said everything was fine. Delinquencies were under control. Way below pre-pandemic levels. The consumer was strong. 

However, the numbers continued to show a different, albeit somewhat slowly evolving story. 

Fast forward to April of this year. The numbers on credit card debt continued to foreshadow a bubble. Yet, here again, the big banks continue to tell us everything is fine. Here’s what The Juice had to say: 

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.

The writing remains on the wall. And, while the big banks absolutely see it, they’re still acting like everything is fine. 

As a comparison case, here’s a line from JPMorgan Chase’s (JPM) Q1/2023 earnings conference call. We quoted it in the above-linked story: 

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.

And a line from the same bank’s recent Q2/2023 conference call: 

Net charge-offs were 1.3 billion, up 640 million year on year, predominantly driven by card as 30-day-plus delinquencies have returned to pre-pandemic levels, in line with our expectations.

Note to self: Just because something is in line with Jamie Dimon’s expectations doesn’t make everything  and everybody okay. This isn’t 1950. What’s good for JPMorgan Chase isn’t necessarily what’s good for America. 

There’s trouble on the horizon. 

According to the New York Fed, credit card debt increased almost 5% – or $45 billion – in Q2 to a new peak of just over $1 trillion. 

This is not the type of trouble the popular media likes to cover. Because it’s not a spectacle that happens overnight. It builds over time and can be boring to follow, particularly if (unlike you and I!) you’re not a nerd and super into finance. 

So, on the heels of this $1 trillion milestone, let’s look at some data from three banks’ Q2 earnings calls. All three of these banks appear in today’s Trackstar top 5. 

Note that not all of the banks report metrics the same way. Also note, they don’t include much of this information in their earnings presentations. You have to dig deep into SEC filings to find it. We wonder why they do this? 

• At Bank of America (BAC), net credit card charge-offs increased to $1.1 billion for the first six months of 2023, compared to $491 million during the same period in 2022. Credit card delinquencies of 90 days or more increased $179 million from $717 million at the end of 2022 to $896 million at the end of June 2023. 
• At Wells Fargo (WFC), net charge-offs in its consumer portfolio  increased to $564 million in Q2, 2023, up from $321 million in Q2, 2022, “driven by,” in the bank’s words, “our credit card portfolio.” WFC’s 90-day or more credit card delinquency rate hit 1.17% in Q2, 2023, up from 0.74% in the year ago period. 
• At JPMorgan Chase, we already presented the charge-off data. The bank did note that its 30-day credit card delinquency rate of 1.7% is back to pre-pandemic levels. As for the 90-day rate, it’s 0.84% in Q2, 2023, up from 0.51% in Q2, 2022. 

After 30 days comes 90 days and shortly after 90 days comes a charge off. Like we said, you can see the writing on the wall.  

The Bottom Line: It’s a pretty straightforward story for such a toxic personal financial cocktail: 

• People weren’t spending during the pandemic. 
• So people saved money, including some free government money, during the pandemic. 
• The pandemic ended. 
• Inflation, housing prices and mortgage interest rates soared. 
• People started spending again on needs and wants. 
• Savings dwindled. 
• People turned to credit cards. 
• An increasing number of people are having trouble paying these ever increasing credit card balances. 
• Student loan payments are about to come due again. 

Don’t say we didn’t warn you. 

And thanks for following along with your nerdy friends at The Juice as we track the economic data – over time – that matters most. Including debt and what might be the most important issue facing our generation—unaffordable housing.

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