Credit card losses suddenly escalated in the first quarter as unemployment and other economic conditions worsened, spooking issuers to the point where most shied away from forecasting losses beyond the near term.

Receivables contracted sharply as efforts by lenders to rein in credit amplified steep declines in consumer spending.

"Unsecured consumer credit," mainly in cards, "is where you feel the teeth of this slowdown," said Joe Price, the chief financial officer at Bank of America Corp., whose card business swung to a $1.8 billion loss.

On first-quarter conference calls, some issuers described a fundamental reorientation of the business in reaction to the credit losses — and the view that the downturn is forging thriftier Americans.

American Express Co. stood out by making a long-term forecast for losses on U.S. card loans. The company, whose profits handily beat analysts' estimates with help from a dramatic cut in operating costs, said losses would continue to surge this quarter before leveling off at yearend. Its forecast assumed the unemployment rate, which hit 8.5% last month, would climb to 9.7% in December.

In a more typical case, JPMorgan Chase & Co. projected its card chargeoff rate would increase another 200 basis points this quarter. "Beyond that, you got to make your own assumption about where unemployment goes," said Michael Cavanagh, the New York company's CFO. "We don't have that much visibility and particularly, like, in the third or fourth quarter."

Similarly, Capital One Financial Corp. said it expects full-year managed chargeoffs across all the banking company's lending businesses to exceed the $8.6 billion projection it gave in January. Citing "significant uncertainty in the economy," it did not provide an updated figure.

"We are at a striking point right now," said Richard Fairbank, Capital One's chief executive. Unemployment "is raging in its bad direction." However, "you've got other data starting to show even some positive signs, and so, all in all, we just felt maybe we were better served just trying to give you a window into how our business works and maybe at this point not be in the 12-month outlook business."


John Williams, an analyst at Macquarie Group, wrote in a note to clients that until credit quality stabilizes and shows a "trend-bucking improvement over a several-month period, we will continue to remain bearish on credit card lenders — and the U.S. consumer."

For now the trend is manifestly in the opposite direction.

The managed chargeoff rate for BofA's card portfolio increased 146 basis points from the fourth quarter and 343 basis points from a year earlier, to 8.6%. The Charlotte company's card business had earned $26 million in the fourth quarter and $867 million a year earlier.

JPMorgan Chase set aside $4.7 billion for losses on card loans during the quarter — almost half the company's entire provision. Its allowance for the business rose 15% from the fourth quarter and 160% from a year earlier, to $8.8 billion.

The chargeoff rate in the company's portfolio, excluding receivables acquired when it bought Washington Mutual banking operations in September, increased 157 basis points from the fourth quarter and 249 basis points from a year earlier, to 6.9%. That was within the guidance JPMorgan Chase reiterated in February.

It also reiterated its February guidance that the chargeoff rate would start to outstrip increases in unemployment at higher levels — for instance, that chargeoffs would be in the range of 9% to 9.5% with an unemployment rate of 9%.

The chargeoff rate in the Wamu portfolio surged 552 basis points from the fourth quarter, to 12.6%; JPMorgan Chase projected it would hit 18% to 24% by yearend.

The company said purchase accounting had suppressed the chargeoff rate last quarter, though the effect disappears as balances revolve.

The managed chargeoff rate in Citigroup's North American portfolio increased 214 basis points from the fourth quarter and 437 basis points from a year earlier, to 10.2%. The chargeoff rate for "retail partner" cards hit 12.4% as credit quality in that business continued to deteriorate faster than among Citi-branded cards. (Citi has assigned the "retail partner" business to Citi Holdings, a vehicle created for noncore assets, including about $300 billion of loans, securities and unfunded commitments subject to loss-sharing with the government.)

Edward Kelly, Citi's CFO, said losses on card loans appear to be exceeding their historic correlation with unemployment. He cited factors like falling home prices and the "denominator effect" of declining receivables.

Capital One's provision for credit losses fell 23.9% from the fourth quarter but increased 35.9% from a year earlier, to $1.5 billion.

The chargeoff rate at Capital One's U.S. credit card business increased 131 basis points from the previous quarter and 254 basis points from a year earlier to 8.4% in the first quarter, exceeding the projection it gave in January of about 8.1%.

Fairbank ascribed the miss in the forecast "to the pace of economic deterioration in the quarter." Its projection had reflected the assumption that the unemployment rate would end the year at about 8.7%. (Capital One now expects unemployment to reach roughly 9.6% by the end of the year.)

Fairbank said the company was "a little bit struck by" the failure of its analysis of delinquencies, the pace at which borrowers make good on past-due amounts and other factors to accurately predict writeoffs.

He said a big factor was a spike in bankruptcy filings, which produce uncollectible debt without adding to delinquent amounts first.

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