The first quarter of 2010 is expected to mark
the peak in credit losses for card issuers in the US, according to
analyst Keefe, Bruyette & Woods.

This follows an increased level of
delinquencies (payments which are more than 30 days late) in August
and October. The peak in the first quarter of 2010 is expected
because these loans are generally charged off after they have been
delinquent for 180 days.

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“We believe we are nearing a time period where
charge-offs are likely to begin declining off of their current peak
in the card industry,” said the research note, written by analysts
Sanjay Sakhrani and Steven Kwok.

Barring a pick-up in bankruptcy filings,
charge offs are likely to improve, the report said.

The companies most likely to benefit from this
trend from the businesses which Keefe, Bruyette & Woods (KBW)
follows were Discover Financial Services, Capital One Financial,
Alliance Data Systems and American Express.

Discover’s loan portfolio is made up almost
entirely from credit card lending and stands to benefit the most
from the reduction in credit losses. Capital One, will also benefit
but has diversified its business model away from credit card
lending with a branch-based, deposit gathering business. US cards
make up around 45 percent of its loan portfolio, though it is also
exposed to auction rate mortgages and commercial real estate.

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American Express, though it will benefit from
the improvements, has already seen a marked improvement in credit
quality and so the impact on its more affluent loan portfolio is
expected to be less.