Since the Great Financial Crisis, credit card losses have been rising fastest.
Goldman Sachs says credit card companies are losing money faster than in almost 30 years, other than during the Great Financial Crisis.
Credit card losses hit a low point in September 2021. At first, they probably went up because of stimulus, but since the first quarter of 2022, they have been going up quickly. Since then, the rate of losses has been going up at a rate that has not been seen since the 2008 slump.
It is not over yet, the company says.
Losses are at 3.63% right now, 1.5 percentage points more than at the bottom. Goldman predicts they will go up another 1.3 percentage points to 4.93%. The Federal Reserve Bank of New York says that Americans owe more than $1 trillion on their credit cards, which is a new high.
Analyst Ryan Nash wrote in a note on Friday, “We think delinquencies could continue to underperform seasonality through the middle of next year, and we do not see losses peaking until late 2024 or early 2025 for most issuers.”
He pointed out that it is rare that the losses are getting worse even though the economy is not in the wrong spot.
He said that three of the last five times people lost money on their credit cards were during recessions. Nash said the two that did not happen during a slump were in the mid-1990s and from 2015 to 2019. He looked at the past to figure out what would happen next.
“In our view, this cycle is a lot like what happened in the late 1990s and a little bit like what happened from 2015 to 2019,” Nash said. “Losses go up after a period of strong loan growth, and the normalisation rate has been about the same so far this cycle.”
He also said that history shows that losses tend to reach their highest point six to eight quarters after loan growth peaks. That means the credit stabilisation cycle is only halfway through, so he said he thought it would take until late 2024 or early 2025 to finish.