Credit card failures have had numerous rapid since the Great Financial Crisis

September 25, 2023: Credit card companies share the swiftest advancement in losses in nearly three decades, but the Great Financial Crisis, as written by Goldman Sachs.

 While credit card failures reached their lowest point in September 2021, the subsequent increases, initially attributed to setbacks from the pandemic, have been steadily climbing since the first quarter of 2022. This trend mirrors the surge in losses last witnessed during the 2008 recession. Goldman Sachs predicts that this situation is far from its conclusion.

Presently, failures are at 3.63%, up by 1.5 percentage points from their low end, and Goldman anticipates them rising another 1.3 percentage points to reach 4.93%. Alarmingly, this happens as Americans collectively owe over $1 trillion on their credit cards, a record high, according to the Federal Reserve Bank of New York.

Analyst Ryan Nash expressed concerns that delinquencies could continue to deviate from seasonal norms throughout the coming year, with losses not peaking anytime soon for most credit card issuers.

This situation is unusual because these losses are occurring outside the context of an economic downturn. Nash pointed out

 that three of the last five credit card loss cycles were associated with recessions. The two exceptions were in the mid-’90s and from 2015 to 2019. Nash used historical data to anticipate further losses, drawing parallels with the late 1990s and the 2015-2019 cycle, which experienced rising losses after periods of robust loan growth.

Nash also noted that historical patterns indicate losses peak six to eight quarters after loan growth reaches its zenith. As the normalization process is only halfway through, he predicts losses may continue to rise until late 2024 or beyond 2025.

Capital One Financial faces the most significant downside risk among credit card companies, followed by Discover Financial Services.