Card companies get ready for a worsening economy

The largest credit card companies are preparing for the economy to get worse.

An economic downturn could mean more customers can’t pay their bills, and banks and credit card companies are trying to get ahead of it, according to their latest earnings reports. Already, delinquencies are rising and are now in line with levels from before the pandemic.

JPMorgan Chase and Citigroup added money to their rainy day funds to cover expected future losses. Retail-card issuer Synchrony is tightening its lending standards. U.S. Bancorp is chasing a more affluent customer base that could better withstand a downturn.

The effects of President Trump’s trade war haven’t yet shown up in the financial results of the largest lenders, whose businesses provide a window into Americans’ spending habits. These firms reported higher profits in the first three months of the year, before Trump rolled out his most severe tariffs. Americans continued to spend, borrow and open new credit cards at a faster pace than a year earlier.

“The focus right now is on the future, which is obviously unusually uncertain," JPMorgan Chase finance chief Jeremy Barnum said on a call with analysts.

There are some early warning signs. Consumers are holding off on nonessential splurges such as vacations. Executives at American Express and Citigroup said that travel and entertainment spending lost momentum in the first quarter, while spending in less discretionary categories picked up. The share of cardholders making only the minimum payment is running above prepandemic levels, Capital One said Tuesday.

Bank executives said consumer spending has remained strong in the first few weeks of the current quarter.

“Consumers are still solidly in the game," Bank of America chief Brian Moynihan told investors last week.

Sustained spending levels in April appear driven more by confidence than panic, card issuers said. Though retailers that offer Synchrony cards started running marketing campaigns to induce purchases before price increases went into effect, so far the impact hasn’t shown up in the data, chief executive Brian Doubles told investors. The store-card issuer’s weekly sales remained relatively flat through early April.

Consumer sentiment has been sinking over the past couple months, fueling concerns that it will cause people to slow their spending. That hasn’t panned out, but banks are still setting aside reserves.

Increased caution is also changing who banks want as customers. Banks that traditionally serve everyday Americans are starting to chase a wealthier crowd in an effort to insulate their card portfolios from the risk that lower-income card customers will fall behind on their bills.

U.S. Bancorp said it is revamping its card strategy to give priority to premium offerings and shifting marketing toward more affluent households.

The top 10% of earners now account for roughly half of all U.S. spending, according to government data.

On the other end of the market, credit is becoming harder to get. Synchrony reported a 3% drop in active accounts and a 4% decline in purchase volume in the first quarter, as it pulled back from riskier borrowers with lower credit scores.

Meanwhile, issuers that already cater to high-income consumers are seeing steadier performance. American Express reported a 7% increase in U.S. consumer spending in the first quarter, and said that trend continued in the first 12 days of April. The company also reaffirmed its guidance for double-digit revenue growth this year.

Unemployment among white collar workers has remained low, which has insulated some companies from risk in their card portfolios. American Express CEO Steve Squeri said that “has probably been our John Wick," referencing the unkillable action movie character.

Write to Imani Moise at imani.moise@wsj.com