Fed Reports Unexpected Collapse In Credit Card, Auto Loan Demand

Tyler Durden's picture

Two weeks after we reported that the consumer credit card default rate as tracked by S&P/Experian Bankcard had surged to the highest level since June 2013...

... we were looking forward to the latest Fed Senior Loan officer survey for more details about changing loan dynamics within US society.

What the report revealed was troubling: while on the surface, the Loan Officer Survey characterized loans to businesses as "basically unchanged" from the previous survey, it did remark that standards for commercial real estate (CRE) loans had tightened.

According to the report, "banks reported tightening most credit policies on Commercial Real Estate loans over the past year.... On balance, banks reported weaker demand for CRE loans in the first quarter."

More concering was the continued drop in demand for C&I loans among small, medium and large corporations, with "inquiries for C&I lines of credit remained basically unchanged" staying at a modestly depressed rate.

This helps explain, once and for all, the recent collapse in Y/Y commercial bank loan creation, both total and C&I, and indicated that contrary to Goldman's take, the steep drop has nothing to do with calendarization or a base effect, and everything to do with declining demand for the product among America's businesses, a concerning deterioration in an economy that is reportedly improving, and where companies would be willing to take out new credit to fund expansion.

Digging deeper revealed an even more distressing picture as a result of a sharp consumer revulsion toward credit, with reduced level of consumer card and auto loan demand in the quarter. The decline took place despite "visibly softer" underwriting standards for cards which surprised some analysts as not creating incremental demand;

Worse, demand for credit cards is now running at the lowest level in the 5 years the survey has provided credit- card-only data for consumer demand.

The report included special questions regarding commercial real estate lending conditions. Tighter credit policies for most CRE loans were the result of "a less favorable or more uncertain outlook for CRE property prices, vacancy rates or other fundamentals on CRE properties, and capitalization rates, as well as reduced tolerance for risk. Significant net shares of banks also reported less aggressive competition from other banks or nonbank financial institutions and increased concerns about the effects of regulatory changes or supervisory actions as important reasons for tightening CRE credit policies." (Emphasis added.)

Additionally, lending for residential real estate reflected little change in standards or demand by consumers. There was also little change to standards or demand for home equity lines of credit. Auto lending standards tightened. It is likely that concerns about the quality of auto loans may be driving some of the more restrictive conditions for lending. For credit card loans, there was some easing of standards and terms were "basically unchanged".

According to Stone McCarthy the contraction in the retail sector has had some impact here as several chains have significantly reduced or eliminated their brick-and-motor presence.

Not surprisingly, as demand for credit bumbled, banks' willingness to lend improved to 10.8 in April after slipping to 3.1 in January.

Finally here are excerpts from several sellside reports, all of which we unpleasantly surprised by the report, courtesy of Bloomberg.

WELLS FARGO (Matthew Burnell) 

  • Primary takeaway remains reduced level of consumer card, auto demand vs 3Q after visible drop in 1Q (published in Jan., responses provided in Dec.)
  • Notes "visibly softer" underwriting standards for cards aren’t creating demand; demand now running at lowest level in the 5 years the survey has provided credit- card-only data for consumer demand
  • Standards across most other loan products were largely stable, though demand for commercial loan and commercial real estate dropped slightly from prior survey and mortgage demand ticked slightly higher (thanks to lower mortgage rates)

JPMORGAN (Daniel Silver)

  • Survey was "a mixed bag," with weakening demand for many key series but also easing in lending standards for some major lending categories
  • Easing C&I lending standards may be most important takeaway, even as demand declined

BARCLAYS (Jason Goldberg)

  • Loan demand across all lending segments generally softened during 1Q, with C&I demand modestly weaker (though inquiries for C&I lines of credit was unchanged); CRE (broad-based), credit card, auto also weaker
  • Key reasons included decreases in customers’ investment in plant or equipment and decreases in M&A financing needs
  • Tighter lending standards could foreshadow CRE (particularly C&D and multifamily), auto credit quality deterioration; regulators still focused on CRE
  • Lists banks most exposed to auto loans: ALLY followed by COF, HBAN, CFG, FITB, while COF, C, JPM, BAC have largest credit card concentration (all >10% of loans); JPM, MTB, COF, KEY have largest multi- family exposure (though all

EVERCORE ISI (John Pancari)

  • Survey shows "tempered tone" around growth, largely reinforcing themes observed in recent results, including sluggish demand and credit tightening
  • Notes little change in level of inquiries for C&I lines contrasts with 1Q bank mgmt comments mentioning pickup in borrower optimism, new line openings

SUSQUEHANNA (Jack Micenko)

  • Trends support Susquehanna’s neutral view of regional banks (BBT, CMA, FITB, HBAN, KEY, PNC, RF, STI, USB, WFC, ZION) as optimism has yet to translate into notable improvement in loan demand

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Sonny Brakes's picture

Two words, quantitative easing.

greenskeeper carl's picture

"Unexpected"

Lol. Ok. Maybe not by you guys, but it doesn't surprise me at all.

Rich Stoehner's picture

Haven't we been reading articals for months predicting these exact circumstances?

Jim Sampson's picture

Come on Yellen, pull the fucking trigger!

spastic_colon's picture

loan standards about to be reduced (again) in 3....2.....1

Life of Illusion's picture

 

 

ALL LOANED UP, PILE OF DEBT, TIME FOR DEBASE

SoilMyselfRotten's picture

Who could've seen this coming?

Answer: Most ZH readers

fockewulf190's picture

Broke is right. Take a look at the gasoline demand stats listed here: https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=a103600001&f=m

Especially since the 2008 crisis, demand for gas has tumbled. Compare the retail sales in January and February of 2008 to 2017. It's not even HALF! Online purchases may be playing a role, but BROKE is the true reason.

No wonder the malls are empty.

JRobby's picture

I'm not sure where they are

flash338's picture

If consumers won't pick up the slack, .gov will. If loan growth drops below 2 percent we with be in recession. Without new loans creating new dollars the ponzi collapses.     3.  2.  1...  massive government spending. The real question is will it be war or infrastructure? 

Caloot's picture

If they want us to borrow more, they better start charging US negative rates.   I'll borrow at -5%.     Ahhhahahahahah

meditate_vigorously's picture

They have looted just about everything they can from the middle class. Much more and they will foment an insurrection.

So maybe you are right. They will just war with eachother over how much money they can print to seize tangible assets before the show is over.

Zorba's idea's picture

Two words...for the future    Quantum Fuckery.

mily's picture

This is the reason CapitalOne is attacking everyone with an ad on every freaking portal in the universe

Same in holiday maker space here in the UK, they are getting pretty desperate

We are getting closer to the end of the business cycle and FED knows it hence the rush to raise interest rates o they can lower them when shit starts to break

spastic_colon's picture

"We are getting closer to the end of the business cycle and FED knows it hence the rush to raise interest rates o they can lower them when shit starts to break"

 

do you see the conumdrum in this?

 

Also....cap one actually has a pretty good 2% cash back business card that if you do the math is better than getting miles/points on most airline/hotel cards.

NotApplicable's picture

Of course, what is the end of a business cycle other than the Fed (et al.) expanding their balance sheets by 400%... AGAIN!

GUS100CORRINA's picture

EVERYONE IS BROKE or PULLING BACK BIGTIME.

EVERYONE KNOWS THIS ECONOMY AND MARKETS ARE AN UTTER AND COMPLETE JOKE!!

TALK ABOUT JOKES ... APPLE LATEST EARNINGS ARE BELOW 2014 EARNINGS AND THE STOCK IS UP BIGTIME. ALSO, APPLE TOOK ON ANOTHER 76 BILLION IN DEBT!

spastic_colon's picture

the top will be when (AOL)  Apple buys (Time Warner)  Tesla...........

JRobby's picture

"Let's all go buy motorcycles and boats with Capital One financing! After all! Summer's here!!!!"  

"How about we buy them at the Treasury Auction instead fuck face?"

gaoptimize's picture

"Survey was "a mixed bag," with weakening demand for many key series but also easing in lending standards for some major lending categories."

How is this a "mixed bag"?  It is exactly the kind of behavior one would expect before a collapse, just as in 2007 with home loans and standards.

Dr. Engali's picture

Two words: Tapped out.

MaxMax's picture

Tapped out - correct.  Most US consumers will spend if they can.  They will spend their paycheck, take out home equity loans, lease cars, put their kids into debt for school, take on credit card debt or anyway they can. 

Bill of Rights's picture

Yet when Oflammer was in office it was one big spending spree right Fed?,,,,Fucking joke this all is ha ha ha

MrSteve's picture

When I worked for the Europeans and things turned ugly, the expression they used was "the results were unforeseen".

Hal n back's picture

Visa and Mastercard stocks doing just fine

Sonny Brakes's picture

The taxpayer backstops the credit card companies otherwise there wouldn't be an economy to speak of.

Hal n back's picture

wrong-the about to go BK country is backing the whole stock market-.

The taxpayer backs the banks-not sure about the credit card customers but then banks are the biggest credit card structures.

What difference does it make at this point---we are going down.

south40_dreams's picture

The patient has entered stage 4 starvation. It won't be long now

Bam_Man's picture

Higher interest rates should help.

Shizzmoney's picture

This is good; fuck private debt for stupid shit you don't need

Sonny Brakes's picture

It's gotten so bad that even people who have no intention of ever repaying their loans have stopped borrowing.

Cordeezy's picture

Unexpected? Zero hedge has been reporting on this coming for a as while now.

www.escapeamazon.com

Cordeezy's picture

Unexpected? Zero hedge has been reporting on this coming for a as while now.

www.escapeamazon.com

Cordeezy's picture

Zero hedge has been reporting on this coming

www.escapeamazon.com

coast1's picture

welcome to liberal Oregon....Oh yeah, this will end well...

  • The current 30 cent per gallon state fuel tax would increase by 6 cents next year, and another 2 cents every other year through 2026.
  • Both title and registration fees would increase by $20 in 2018, and another $5 every other year through 2026.
  • A new vehicle excise tax of 1 percent would begin next year, and would increase by 0.5 percent in 2020 and in 2022. A new bicycle tax of 4 percent would begin next year as well.
  • A statewide employee payroll tax of 0.1 percent would take effect next year. It would cost a minimum wage worker about $20 per year, or a worker with an annual salary of about $50,000 about $50 per year.

Looks as tho I will be walking...they are even taxing bicycles...probably will raise the bus fares too...

Juggernaut x2's picture

Those gas taxes never make it to infrastructure repair- that $ is used by the state to pay for retired govt "worker" pensions.

ipso_facto's picture

'Looks as tho I will be walking...they are even taxing bicycles...probably will raise the bus fares too...'

I believe it was The Beatles that predicted they would 'tax your feet'.

Shane Smith's picture

literally commenting so I can figure out what my username actually is

spastic_colon's picture

whoops........the whole world just stole Shane Smith's identity

Your Good Friend's picture

Collapsing demand...... it's the end result of grossly inflated prices.

 

Remember.... Nothing accelerates the economy, creates jobs and raises the standard of living like falling prices to dramatically lower and more affordable levels. Nothing.

1stepcloser's picture

Make EBTs good for anything.  

Falling Down's picture

The U word makes a reappearance...