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Major Banks Report Mixed Bag on Credit Card Front

October 29, 1993

NEW YORK (AP) _ As credit card rates decline, major banks find they have to work harder to make a buck.

Major issuers that made a late entry in the credit card battle, such as Chase Manhattan and Chemical Bank, are seeing a slow erosion in their earnings. But the more aggessive issuers, like the Discover Card and First Chicago, did well in the third quarter.

″It is all over the map,″ said Robert McKinley, president of Ram Research Corp. of Frederick, Md.

The underlying trend in the disparate results by credit card issuers has been their response to the falling interest rates that, according to Ram, have brought the average credit card rate in August to 16.3 percent from 18.5 percent two years ago.

The quarter’s gains at Discover and First Chicago were chiefly the result of their success at signing up new cardholders.

First Chicago, the nation’s fifth-largest credit card bank, posted a double-digit earnings gain from credit card operations. The bank aggressively promotes its gold cards, which have higher credit limits, and no-fee credit cards with variable interest rates, said bank spokeswoman Elisabeth Weiner.

The Discover Card’s earnings rose 48 percent, a gain that Ronald L. Mandle, bank analyst at Sanford Bernstein & Co., said is partly due to active solicitation of new accounts.

Other major issuers haven’t done as well in recent quarters.

Chase’s total outstanding credit card loans stayed flat for the first half of the year while Chemical Bank had a decline of a fraction of 1 percent, Ram research said. The two didn’t quickly respond with new credit card products and prices when the credit card wars escalated in late 1991, analysts said.

Chase and Chemical disputed that view.

Ken Mills, a Chase spokesman, said Chase was set to announce ″the most aggressive pricing straegy in the industry,″ but he declined to release further details.

Citicorp, the nation’s largest card issuer, doesn’t release third-quarter results for its credit card unit until next month. Thomas Jones, Citicorp’s principal financial officer, told analysts earlier this month the bank has reduced credit card losses, and that charge volume is about flat.

Jones also said Citibank’s card business is moving away from its old mass marketing strategy. ″Our response to the increasingly competitive environment will be to become increasingly more selective,″ he told analysts.

The selectivity strategy is paying off for other players.

First Bank System Inc. of Minneapolis reported its credit card fees rose 19.2 percent in the third quarter from year-ago levels, much of that due to its Visa-branded credit card aimed for the corporate market, said Tom Maier, vice president of equity research at Kemper Financial Services in Chicago.

Another major issue in transition is American Express. Earnings rose sharply at the company’s charge card and travel services business due to lower expenses and absence of a huge restructuring charge.

But net revenues fell by about 3 percent due to lower fees charged to merchants and a drop-off in the number of cards in circulation, declines the company says were partially offset by higher spending per card member.

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