What is unusual is that the losses are accelerating outside of an economic downturn, he pointed out.
Of the past five credit card loss cycles, three were characterized by recessions, he said. The two that occurred when the economy was not in a recession were in the mid ’90s and 2015 to 2019, Nash said. He used history as a guide to determine further losses.
“In our view, this cycle resembles the characteristics of what was experienced in the late 1990s and somewhat similar to the ’15 to ’19 cycle where losses increase following a period of strong loan growth and has seen similar pace of normalization thus far this cycle,” Nash said.
History also shows that losses tend to peak six to eight quarters after loan growth peaks, he said. That implies the credit normalization cycle is only at its halfway point, hence the late 2024, early 2025 prediction, he said.