Wells Fargo Will Build on Credit Card Success: Citi

NEW YORK ( TheStreet) -- Wells Fargo ( WFC) has been the most successful among major U.S. lenders in growing its credit card business over the past year, and the bank is poised for a more aggressive growth push later this year, according to Citigroup analyst Donald Fandetti.

Following a recent meeting with Visa ( V) CFO Byron Pollitt, Fandetti in a note to clients said the payment processor's management was "particularly constructive on affluent credit spend and reiterated that this segment has driven virtually all of their US credit growth over the past two years."

Fandetti added that the Visa team believes "equities and housing drive affluent spend, with equities being the more important of the two."

There's no question that we're in a hot stock market, with the Dow Jones Industrial Average returning 13% year-to-date through Wednesday's close, while the S&P 500 Index ( SPX.X) has returned 14%.

And reports of continued mortgage credit improvement and the upward drive for home prices continue to pour in on an almost daily basis.

Wells Fargo reported first-quarter average credit card loans of $24.1 billion, increasing 9% from $22.1 billion in the first quarter of 2012.

During the company's earnings conference call on April 12, CFO Tom Sloan said Wells Fargo added "a record of 577,000 new credit card accounts in the first quarter, up 18% from a year ago and up 31% from the fourth quarter." Sloan also said for the bank's card business, "our household penetration increased to 34.1%, up from 29.9% a year ago."

Those are incredible numbers, especially when considering the general deleveraging trend for U.S. consumers in the wake of the credit crisis.

Fandetti wrote that Wells Fargo "is planning a more aggressive push in US card issuance in Q3'13, based on our discussions with industry executives."

Here's how the credit card loan growth stacked up for Wells Fargo's major card-lending competitors:
  • Capital One's (COF) average portfolio credit card loans increased 17% to $78.4 billion in the first quarter from $61.5 billion a year earlier, however, the company acquired roughly $27 billion in card loans from HSBC last year, and transferred its $7 billion Best Buy card portfolio to held-for-sale in the first quarter. The sale of the Best Buy portfolio to Citigroup is expected to be completed in the third quarter.
  • Discover Financial Services (DFS) reported its credit card loan balances averaged $49.3 billion during the first quarter, increasing 6% from a $46.6 billion a year earlier.
  • Citigroup (C) reported average card loans increasing 3% to $146.2 billion in the first quarter from $141.7 billion in the first quarter of 2012.
  • American Express (AXP) reported average loans of $62.8 billion in the first quarter, increasing 3% from $60.7 billion a year earlier.
  • U.S. Bancorp (USB) reported first-quarter average credit card loans of $16.5 billion, declining 2% from $16.8 billion a year earlier.
  • For JPMorgan Chase (JPM), average credit card balances declined 3% to $123.6 billion in the first quarter from $127.6 billion a year earlier.
  • General Electric (GE) subsidiary GE Capital had reported that its period-end U.S. installment and revolving credit loans -- mainly credit card loans -- totaled $48.5 billion as of Dec. 30, declining 5% from $50.8 billion a year earlier.
  • Bank of America's (BAC) credit card loan balances averaged $91.7 billion during the first quarter, declining 7% from $98.3 billion in the first quarter of 2012

Citigroup could make an even stronger foray in to private label cards. Bank of America Merrill Lynch analyst Erika Penala said in a note to clients on Tuesday that Citi could be the most logical buyer for GE Capital's $31 billion private label card portfolio.

Wells Fargo has greatly expanded its share of the U.S. mortgage lending over the past several years, as Bank of America has pulled back. But with mortgage refinance volume slowing, the company needs other levers to pull, in order to grow its earnings.

A focus on growing its lucrative credit card business offers a refreshing contrast to the continual and depressing focus of the largest U.S. banks on hitting their numbers by cutting overhead expenses.

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-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.