Morgan Stanley: Favorable Credit Cycle Continues For Financials

A recent report by Morgan Stanley looked at the current credit cycle for large-cap banks and specialty finance companies. Analysts believe the most recent data points indicate that the current favorable credit environment still has legs. The numbers The report highlighted favorable numbers from American Express Co

. American Express' auto net charge offs (NCOs) dropped by 75 bps Month-over-month (m/m) in February to 1.39 percent, in line with February 2014. Analysts expect a number in the 3 percentage by the end of 2016, but see the February number as a positive indicator of the durability of the current favorable environment. Loans declined by an average of 3 percent among issuers American Express, Capital One Financial Corp

and Discover Financial Services

for the second straight month. These numbers follow up on strong loan growth during the holiday season, including a 4 percent m/m increase in December. Revising retail sales numbers Analysts blame weather for the lag in February retail sales numbers, but also point out that retail sales growth has been flat for several months now. However, they believe that better weather and the Easter calendar shift could provide better numbers for March. Analysts lowered their Q1 consumption growth forecast from 2.8 percent to 2.1 percent. Other big names The report also included credit numbers for the master trusts of JPMorgan Chase & Co

, Bank of America Corp

and Citigroup Inc

. JP Morgan's total delinquency (DQ) rate increased 1bp to 1.35 percent, lowest of the three names. Bank of America's early-stage DQs increased to 0.54 percent for the month. Citigroup's NCOs increased 25 bps to 2.55 percent, well below the seasonal average of a 68 bps increase. Disclosure: The author owns shares of Bank of America.