Credit card companies are experiencing their most rapid rise in losses in nearly three decades, according to Goldman Sachs, excluding the Great Financial Crisis. Initially stemming from the end of stimulus measures, these losses have been steadily increasing since early 2022 and resemble patterns observed in previous cycles.
Currently at 3.63%, they are expected to climb to 4.93%, even as American credit card debt reaches a record high of over $1 trillion. Analysts predict losses won’t peak until late 2024 or early 2025 for most issuers, marking an unusual acceleration in losses outside of a recession.
Historically, credit card loss cycles have coincided with economic downturns, but this cycle reflects characteristics seen in the late 1990s and the 2015-2019 period, driven by strong loan growth.
With losses tending to peak six to eight quarters after loan growth peaks, this suggests the credit normalization cycle is only midway through, posing a significant downside risk for companies like Capital One Financial and Discover Financial Services.
