What to expect from American Express, Capital One and to find out in Q3 results

American Express (NYSE: AXP), A capital letter (NYSE: COF), and Discover financial services (NYSE: DFS), three of the biggest credit card players on Wall Street outside of mega-banks, are expected to release their third quarter results later this month. It will be interesting to see how these consumer-oriented businesses have held up in a quarter that hasn’t always seemed to move in a linear fashion. There have been setbacks due to the delta variant but also an economic recovery, depending on where you are nationally and internationally.

Let’s see what to expect from this trio when each one publishes their profits.

Image source: Getty Images.

Regular spending and minimal loan growth

It looks like there will be some loan growth, but investors will likely have to continue to wait until more normalized loan growth returns. On a more positive note, spending levels appear to have remained high compared to the second quarter, but they have also stabilized. American Express increased loan balances by about 7% in the second quarter, but loan balances were still down 11% from 2019. In August, the company reported in a regulatory filing that total loans to US members had remained roughly stable from July.

In mid-September, American Express CFO Jeff Campbell spoke at a virtual conference on Barclays global financial services and said loan balances were increasing but it was not. a big trend. He said loan repayment rates are still high as American consumers remain financially healthy and continue to pay off their debts. Campbell added that the company’s overall spending by its customers was up 3% from 2019 levels, an improvement from the second quarter. The spending appears to be largely consumer-driven, Campbell noted, and the company isn’t counting on an increase in global business spending in what’s left of 2021 and even 2022.

Capital One‘s spending data seemed more in line with trends from other mega-banks. CEO Richard Fairbank said spending levels rose 25% in the second quarter compared to the second quarter of 2019, a trend that continued into the third quarter. Discover’s CFO John Greene had a similar sentiment, saying sales in mid-September were up 30% from 2019. Greene said travel spending was strong until mid-August before starting to decline, some of which the company says are due to the delta variant and a slight increase in COVID-19-related hospitalizations during the third trimester.

Capital One reported that average loan balances in its domestic card business at the end of August increased by about $ 5 billion, or 5.5%, from the end of the second quarter, this which is pretty solid right now. Average auto loan balances have also increased, but at a much slower pace. Average outstanding loans at Discover had increased by just over 2% between the end of June and the end of August.

From a higher perspective, data on consumer debt from the Federal Reserve showed that the total stock of revolver debt exceeded $ 1 trillion and increased by about $ 3 billion in August, or about 3.6% on a seasonally adjusted basis. It’s slower than July’s growth, but it’s still growth. Fed data also shows that in the second quarter, consumer loans, including credit cards, at all U.S. commercial banks increased by about $ 16 billion. In the third quarter, that figure also appeared to hover around $ 16 billion, showing that activity remained relatively stable compared to the second quarter.

Strong credit and more loan releases

One of the positives of moderate loan growth and higher repayment rates has been strong credit quality in a business that tends to have higher write-offs (debts unlikely to be collected and a good indicator losses) than many other loan segments. Here are the imputation and delinquency data (loans without payment for at least 30 days) for June, July and August.

Society August settlement rate Settlement rate July Settlement rate June August Delinquency Rate July Delinquency Rate June delinquency rate
American Express (consumer card) 0.60% 0.70% 0.70% 0.60% 0.60% 0.60%
Capital One (domestic card) 1.54% 1.45% 2.12% 1.79% 1.71% 1.68%
Discover financial services 1.73% 1.72% 2.18% 1.42% 1.42% 1.43%

Data source: Company regulatory filings.

With credit, especially write-offs, improving in the third quarter, these three companies could end up freeing up previously built up reserve capital for loan losses during the height of the pandemic. This capital would flow directly to the income statement as profit in the third quarter and could help profits. However, the size of the reserve release could still be minimal depending on how the executives of each of the three companies view the economic outlook.

The gains could still be decent

While it might not be very exciting, American Express, Capital One and Discover could still post strong third quarter earnings. All of these companies likely repurchased shares during the quarter and the reserve releases could help the cause as well. The flip side of minimal loan growth is having to write off fewer loans and perhaps loan growth started to improve in September and October as the delta cases stabilized.

More certainty and positive indications of profit calls could prove to be just as important as actual results for investors. Check out Financial Services reports on October 20, American Express reports on October 22, and Capital One reports on October 26.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.