Rising Consumer Debt & Delinquencies: Why BAC, WFC & USB Offer Relative Safety

The broader U.S. consumer credit environment has become strained. Household debt reached approximately $18.6 trillion in Q3 2025, with credit cards and student loan balances climbing, and delinquency rates against total debt reaching ~4.5 %—levels not seen since early 2020. Student loans stand out: serious delinquencies (90+ days past due or default) ranged between 9-10 %, and transitions into delinquency surged YoY [1][2]. Auto loans and HELOCs also face elevated transition rates. Mortgages remain resilient but are showing early signs of strain. These trends threaten banks’ credit quality, provisioning needs, and access to risk assets.

Against this backdrop, BAC, WFC, and USB emerge as relatively resilient among large U.S. banks. Zacks’ Screening criteria (large market cap > $30 bn, strong recent price performance, 2026 EPS growth > 5 %, Zacks Rank 3) picked these three for stability [4]. BAC brings scale, strong capital adequacy (CET1 ~10.5 %), digital and physical branch expansion (150+ new centers by 2027), and solid expectations for net charge-offs falling and ROTCE between 16-18 % [4]. WFC, having shed prior regulatory constraints (asset cap removed June 2025), is now targeting more aggressive growth, with ROTCE raised to 17-18 %, loan and deposit expansion, and improved fee income diversification [4][5]. USB—smaller scale—shows steady improvements in NCOs, cautious underwriting, and modest EPS growth (≈ 7.5 %), while raising liquidity via low short-term debt and solid cash holdings [4].

However, substantial risks follow. First, elevated credit delinquencies likely force higher loan loss provisioning, squeezing forward margins. Second, high funding costs compress net interest margins (NIM), especially for banks with large deposit bases; rate cuts help, but likely gradually. Third, loan demand remains uneven; consumers under stress may pull back; regulatory or macro shocks (e.g. inflation, employment) could worsen outcomes. Fourth, valuations for WFC, BAC are near peer medians but may already price in the upside implied by easing regulatory constraint and earnings targets [5].

Strategically, opportunities include boosting fee income (wealth, payments, cards), pursuing efficiency gains (branch refresh/closures, digital tools), deploying capital into higher-return assets as regulatory constraints ease (e.g. WFC after cap removal), and lean debt cost management. Open questions for 2026: how quickly will consumer credit deterioration accelerate? Will rate cuts offset margin pressure? Which bank can execute digital & branch growth and improve ROE without inflating costs? And importantly, can WFC deploy freed capacity into profitable growth without reintroducing risk?