Credit card defaults please Wall St, shares up

By Juan Lagorio

NEW YORK (Reuters) - U.S. credit card companies said defaults and delinquencies were lower in June than analysts feared, sending the shares of some up over 10 percent and helping the stock market rally on Wednesday.

And with American Express Co forecasting better business in the second half of the year, investors saw their first meaningful glimmer of hope about the credit picture since last fall.

American Express posted its first decline in chargeoffs -- loans the company does not expect to be repaid -- in a year, while JPMorgan Chase & Co and Discover Financial Services also surprised analysts with fewer defaults for the first time since October.

In addition, accounts at least 30 days delinquent -- often an indicator of future defaults -- fell in June across the industry, with American Express and Capital One Financial Corp posting their fourth-straight monthly declines.

The reports may signal that American consumers' credit positions are not deteriorating as rapidly as feared, despite rising unemployment and the continuing housing slump.

"A lot of the weaker customer base has already charged off," said Sanjay Sakhrani, an analyst at KBW. "You have a better core portfolio. But that is not to say that portfolio is not immune from what is going to be a weaker macroeconomic backdrop."

American Express, the largest U.S. credit card company by sales volume, said its default rate inched down to 9.9 percent in June from 10 percent in May, according to a regulatory filing. It was its first monthly decline in a year.

The company said defaults rose to 10 percent in the second quarter from 8.5 percent in the first quarter, but were below its estimated range of 10.5 to 11.0 percent.

American Express also said it was highly likely that defaults would be lower than expected in the second half of 2009, "if delinquency and bankruptcy trends continue to be below previously expected levels."

JPMorgan -- the largest issuer of Visa credit cards -- reported that defaults declined to 8.04 percent in June from 8.36 percent in May, while Discover's posted defaults fell to 8.75 from 8.91 percent.

Citigroup -- the largest issuer of MasterCard branded cards -- said defaults were almost unchanged at 10.5 percent, while Capital One's chargeoff rate rose less than expected to 9.73 percent from 9.41 percent.

"Overall, delinquencies and chargeoffs were a little bit better than expected, reflecting maybe stabilization in some of these trends," said Walter Todd, portfolio manager at Greenwood Capital Associates.

American Express shares jumped 11.28 percent to close at $27.22, their highest closing in 10 weeks, while Capital One soared 11.81 percent to $25.84. Discover closed up 6.16 percent at $10.85 and JPMorgan gained 4.5 percent to $36.26.

The Dow Jones industrial average ended the day 3.07 percent higher.

But other data showed consumers remain under pressure. Bank of America Corp, the largest U.S. bank, said on Wednesday its default rate rose to 13.81 percent in June from 12.5 percent in May.