| NEW YORK
NEW YORK U.S. credit card defaults rose in April to record highs, with Citigroup and Wells Fargo posting double digit loss rates, as the recession slashed more than 2 million jobs since the beginning of the year.
"U.S. card credit quality continues to struggle," John Williams, an analyst at Macquarie Research, said in a note to clients.
In March, investors gained confidence in the industry after American Express Co reported better-than-expected credit card default rates, suggesting cardholders' ability to pay bills could be stabilizing.
But the latest numbers dashed hopes of an early recovery, according to reports on the performance of credit card loans that issuers packaged into bonds and sold to investors.
"April, in our opinion, still bears some beneficial trickle effect of tax refunds received by customers and therefore is seasonally a relatively better month," Scott Valentin, an analyst at FBR, said in a research note, suggesting a grimmer outlook for the industry in coming months.
Citigroup Inc -- a big issuer of MasterCard cards -- reported its annualized charge-off rate rose to 10.21 percent in April from 9.66 percent in March.
In addition, Wells Fargo & Co said its charge-off rate increased to 10.03 percent from 9.68 percent, while JPMorgan Chase & Co -- a big issuer of Visa cards -- reported its charge-off rate rose to 8.07 percent from 7.13 percent in the previous month.
Discover Financial Services, the U.S. fourth-largest credit card network, said its default rate rose to 8.26 percent in April from 7.39 percent in March.
U.S. unemployment -- currently at 8.9 percent -- is expected to approach 10 percent as the country endures its worst recession since World War Two. Credit card losses are likely to follow that way.
If credit card losses across the industry top 10 percent, as some analysts and bank executives expect to happen later this year, loan losses could reach between $70 billion and $75 billion.
The exception in April was Capital One Financial Corp, which reported lower defaults rates in its U.S. business, and beat analyst expectations, as it changed its customer bankruptcy accounting, waiting longer to declare the debts of bankrupt customers uncollectable.
Excluding the benefit of that change, Capital One's credit card defaults were in line with March data. "We expect a 'catch-up' in May, which will likely cause a large spike in the May net charge-off rate" of Capital One, Valentin said.
Capital One also surprised investors last week after U.S. regulators decided the bank is sufficiently capitalized to face a deeper recession.
Credit card lenders are trying to protect themselves by tightening credit limits, raising standards and closing accounts. They have also been slashing rewards, increasing interest rates and boosting fees to cushion against further losses.
American Express Co was expected to release its monthly credit report in the afternoon.
Citigroup shares fell 1.41 percent to $3.50, while Wells Fargo's stock declined 2.72 percent to $25, and JPMorgan Chase's stock dipped 2 percent to $34.83 on the New York Stock Exchange. Capital One was up 0.85 percent at $24.79.
(Editing by Steve Orlofsky)