SUMMARY
- Goldman Sachs notes unprecedented credit card loss rates
- Predicted peak of losses between late 2024 and early 2025
- Current loss cycle reminiscent of unique mid-90s and 2015-2019 periods
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Credit card firms are currently facing an unwelcome blast from the past. Their losses are speeding up at a rate not seen for nearly three decades, excluding that rough patch known as the Great Financial Crisis, Goldman Sachs notes. In September 2021, the losses hit their lowest. However, the surge that followed wasn't just a post-stimulus effect. The rate of losses observed lately mirrors the bleak days of the 2008 recession.
Goldman Sachs hints this storm isn't passing soon. At present, the losses have climbed to 3.63%, rising by a significant 1.5 percentage points. And the forecast? They could soar up to 4.93%. To add to this somber note, Americans currently have an all-time high debt of over $1 trillion on credit cards, reveals the Federal Reserve Bank of New York.
Analyst Ryan Nash brings another angle to this story. He suggests we might not see the peak of these losses until somewhere between late 2024 and early 2025. Now, here's the twist: these escalating losses are happening outside the usual suspect - an economic downturn. Historically, out of the last five significant credit card loss cycles, only two weren't accompanied by an economic recession. According to Nash, the current scenario bears a resemblance to those two unique cycles from the mid-90s and between 2015 to 2019.
A historical trend also shows a pattern: the peak of losses usually appears six to eight quarters post the climax in loan growth. If we go by this, Nash believes we're only halfway through the credit normalization phase. And if you're looking to point fingers, Capital One Financial might be more at risk, closely followed by Discover Financial Services.
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