Report: Credit Card Companies Won Big, Lost Big in 2010

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One major credit card issuer made a whopping $9 billion more in profits in 2010 than one of its chief rivals. That’s just one of the surprises from estimates published in the latest Nilson Report, a newsletter on the card payment industry.

American Express made about $2.25 billion in 2010, according to Nilson’s estimate. That was 449% higher than last year, when Nilson estimated that AmEx made a piddly $410 million in profit.

And American Express’ big upswing swamped Bank of America’s credit card business, which Nilson estimates lost $6.6 billion last year. If true that would be the second straight year of major losses for BofA; in 2009 the bank’s credit card side lost $5.26 billion, Nilson estimated.

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“Credit card issuers had a pretty tough 18 to 24 months starting in the second half of 2008 and continuing through the end of 2010,” says Megan Bramlette, a director at Auriemma Consulting, a New York firm that studies the payments industry.

JP Morgan Chase, Capitol One and Discover all earned profits over $1 billion in 2010, Nilson estimates, as opposed to modest gains for Capitol One ($920 million) and substantial losses for the other two companies (-$2.23 billion and – $440 million, respectively) in 2009. That turnaround is largely because the Great Recession caused a lot of shaky borrowers to give up on credit cards entirely, leaving behind a smaller group of consumers with generally better credit and less risk, Bramlette says.

In addition, card issuers responded to the recession by offering major incentives to keep high-credit consumers, and encourage them to use their cards, Bramlette says, boosting issuers’ revenues with little risk of loss.

“American Express, which is best-in-class in facilitating loyalty of affluent, low-risk customers, clearly their earning report shows they’re doing a great job of that,” says Bramlette.

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