U.S. credit card defaults fall, delinquencies up

NEW YORK (Reuters) - U.S. credit card companies said on Monday that defaults fell more than expected in October, but delinquencies mostly rose in a sign consumers remain under stress and the sector can expect more pain ahead.

The drop in defaults reflected a decline in late payments earlier this year thanks to tax refunds and economic stimulus actions.

Shares of American Express (AXP.N), the largest U.S. credit card company by purchases, rose to their highest level in 16 months, while Discover Financial Services (DFS.N) ended 4.6 percent higher.

But delinquencies, late payments that can indicate future credit losses, generally rose as more Americans lost their jobs. Capital One Financial Corp (COF.N) and JPMorgan Chase & Co (JPM.N) reported the biggest increases in late payments.

American Express Chief Financial Officer Dan Henry said unemployment was still a big uncertainty and was forecast to continue to rise.

"And so we have to take a cautious outlook, even though things are notably better than they were a year ago at this time and certainly better than they were early this year," Henry told the Reuters Global Finance Summit in New York.

Credit card charge-offs and delinquencies usually track unemployment, which rose to a 26-1/2-year high of 10.2 percent in October.

American Express Co said in a regulatory filing that its charge-off rate -- loans the company does not expect to be repaid -- fell to 7.8 percent in October from 8.4 percent in September.

Bank of America Corp (BAC.N), the largest U.S. bank, said that its charge-off rate fell to 13.22 percent in October from 14.25 percent in September. However, the bank is still the credit card issuer with higher defaults and delinquencies.

JPMorgan, the largest issuer of Visa-branded credit cards, said its charge-off rate declined to 8.02 percent from 8.12 percent, while Citigroup Inc (C.N), the biggest issuer of MasterCard-branded credit cards, said defaults fell to 8.79 percent from 10.15 percent.

Capital One's charge-off rate fell to 9.04 percent from 9.77 percent, and Discover' declined to 8.54 percent from 8.69 percent.

"It's of course nice to see the decline in chargeoffs, but our view remains that the delinquency trends that we have seen in the past few months suggest that there is more credit pressure ahead," RBC Capital Markets analyst Jason Arnold said.

UNDER GREATER STRESS

Capital One said delinquencies rose to 5.72 percent in October from 5.38 percent in September, while JPMorgan's late payments rose to 4.95 percent from 4.69 percent.

Last week, Capital One Chief Executive Richard Fairbank forecast that charge-offs will keep rising and remain elevated throughout 2010, hurt by weakness in the housing market and job losses.

Bank of America's delinquency rate inched up to 7.59 percent from 7.53 percent, and Discover's rose to 5.72 percent from 5.57 percent.

American Express was the exception, as delinquencies remained unchanged at 4.1 percent.

"We view this month's numbers as a sign that credit could be coming under greater stress," Barclays Capital analyst Bruce Harting wrote in a note to clients.

As card losses rose to record highs in recent months, lenders closed millions of accounts, trimmed credit limits and slashed rewards. The companies are also raising fees and interest rates ahead of a new consumer-protection law.

American Express shares closed up 2.7 percent to $41.44 after touching their highest level in 16 months.

Discover shares ended up 4.6 percent to $16.11, Capital One gained 2.8 percent to $39.89, JPMorgan rose 0.3 percent to $43.04, and Citigroup moved 3.2 percent to $4.18.

Bank of America fell 0.7 percent to $15.87.

(Reporting by Juan Lagorio; editing by John Wallace and Tim Dobbyn)