The rate of U.S. credit card defaults showed signs of stabilizing last month, an indication that American consumers may not be in as bad shape as feared despite job losses and the housing slump.

Bank of America Corp in a regulatory filing on Monday said credit card default rates dropped in July after several months of a steep deterioration. JPMorgan Chase & Co , Citigroup Inc , and Discover Financial Services also said bad-loan levels fell.

It just seems to bear out what we heard in the second-quarter calls, that things seem to be getting marginally better -- and I would stress marginally -- on the consumer side, Nancy Bush, founder of NAB Research, said of Bank of America.

Bank of America, the bank with the highest default and delinquency rates among the top credit card issuers, said its charge-off rate -- debt the company believes it will never collect on -- inched down to 13.81 percent in July from 13.86 percent in June.

There's a seasonality concern. There's also a more legitimate concern that we're finishing up the first wave that was related to subprime and now we're going to get into the second wave related to good old recession losses, Bush said.

Even more encouraging was JPMorgan's report that defaults fell to 7.92 percent from 8.04 percent for second straight month, while Citigroup's default rate declined to 10.03 percent from 10.51 percent.

Discover's charge-off rate fell to 8.43 percent from 8.75 percent.

Capital One Financial Corp bucked the trend, however, as its annualized net charge-off rate rose to 9.83 percent in July from 9.73 percent in June, but beat analysts expectations.

The data was better than expected and the fact that you saw stabilization is a positive. It seems as if things are pointing toward improvement, said Sanjay Sakhrani, an analyst at KBW.

Analysts were also pleased by a continuation of the decline in delinquencies -- an indicator of future defaults -- in American Express, Bank of America, and JPMorgan.

These reports come a few weeks after American Express Co sparked optimism for credit card issuers after posting a second straight month of falling defaults. AmEx said it saw the first signs of improvement for the industry in 18 months and stressed the decline in losses was not seasonal.


Some analysts have attributed the recent slowdown in defaults to seasonal effects, as Americans use tax refunds to pay down debt, and predict bad-loan levels will keep rising until later this year or early 2010.

Credit card defaults usually track unemployment, which is expected to peak at more than 10 percent by year-end. It was at 9.4 percent in July.

We expect write-offs to rise modestly in the third quarter and stabilize somewhat but remain elevated in the fourth quarter, Credit Suisse analyst Moshe Orenbuch said in a research note.

However, we believe that further increases in the unemployment rate could cause a second spike in credit losses in the second half of the year.

Sakhrani said he was cautiously optimistic about credit card losses peaking this year, but Chris Brendler, an analyst at Stifel Nicolaus, forecast they will climb to record highs in the second quarter of 2010.

Many analysts and bankers have anticipated credit card companies will not be profitable until 2011.

Shares of Bank of America closed down about 5 percent to $16.56, JPMorgan fell 4 percent to $40.73 and Capital One dipped 3.0 percent to $34.06. Also, Citigroup fell 1 percent to $4, Discover declined 2.8 percent to $12.13 and American Express dropped 4.2 percent to $30.39. All trade on the New York Stock Exchange.

(Reporting by Juan Lagorio and Elinor Comlay; Editing by Steve Orlofsky, Tim Dobbyn and Bernard Orr)