Is JPMorgan Chase (JPM
) a good buy? That's a very good question, as the financial giant's stock price has fluctuated significantly over the past 12 months, from a low of $28.38 per share in December to a high of $46.27 in August. Interestingly, Chase has even showed a willingness to lose money in order to coax an affirmative answer and some hard-earned money out of you.
More specifically, Chase seems to be the only major credit card company offering a free balance transfer credit card -- a type of card lacks any discernible source of profitability. You see, its Slate Card provides 0% introductory interest rates for 15 months and charges neither a balance transfer fee nor an annual fee, which makes you wonder what the issuer is up to.
The way I see things, there are three possible explanations:
1. The company sees a revenue stream no one else does:
The Slate Card could prove profitable if a large segment of cardholders fail to pay off their transferred balances within the 15-month 0% introductory period and are unable to transfer what remains to another balance transfer credit card. However, you can bet that most cardholders will do everything they can to either pay off what they owe before interest kicks in or transfer remaining debt to any balance transfer card that is attainable.
2. Chase has developed a more sophisticated cross-selling mechanism than its competitors:
Chase will garner an influx of new customers with excellent credit (what the Slate Card requires for approval) as a result of this offer. Such folks are worth their weight in gold these days, as they're well situated to maintain responsible financial management in the event of a double-dip recession and are sitting ducks for cross-sales. In other words, Chase could be playing the long game with the Slate Card. If they've found a dependable way to exploit this game, they could be in for a big score. If not, they're taking a gamble that should concern potential investors.
3. They're cookin' the books:
We all know that investors track big banks' outstanding credit card balances and charge-off rates, and offering a balance transfer credit card that's too good to pass up is a surefire way to not only feign the appearance of growth, but also artificially make it seem like there is less uncollectible debt in play. Ensuring more attractive metrics could allow Chase to attract new investors, garner an infusion of cash, and thereby force stock prices onto an upward trajectory. This is undoubtedly the most plausible explanation for the resurgence of the free balance transfer credit card. Ultimately, there's really no way to tell for sure what Chase is up to, but it's definitely something that potential investors should keep an eye on, as it might reflect broader issues with its credit card business. If you're still not convinced, an additional data point to keep in mind is the fact that Discover (DFS
) offered and then quickly discontinued a free balance transfer card with much less attractive terms a few months ago, and the likes of Capital One (COF
), Bank of America (BAC
), and Citi (C
) have not even entered into the fray. When you further consider that Capital One was the most profitable major issuer during the worst year of the Great Recession and Chase was one of only three major issuers
that didn't make any money, this is especially concerning.
Positions: Long in COF
Odysseas Papadimitriou, a former senior director at Capital One, is the founder and CEO of the credit card comparison website Card Hub and the personal finance social network Wallet Hub.