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"The deterioration in credit cards is accelerating faster than many had expected"
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Posted by ian 1 year 116 days ago (smartmoney.com). Views: 151
Tags: credit cards banks capital one jp morgan chase |
| Related Tags: credit crisis housing bubble recession gold finance economics bailout |
Investors sold on plastic may want to reduce their balances.
Credit card issuers - ranging from standalone companies such as Discover Financial Services (DFS) and American Express Co. (AXP) to those at banks like Washington Mutual Inc. (WM) and Citigroup Inc. (C) - are likely to suffer worse losses in the coming quarters than initially expected.
Hit by the double-whammy of a growing reliance on credit cards by cash-strapped borrowers and a worsening economic downturn, issuers' earnings should be dented by deeper loss reserves and higher defaults.
New credit card data from Fitch Ratings indicate that losses are hovering around or have exceeded five-year averages and issuers have increased their loss expectations or withdrawn guidance in the face of rising unemployment, record-high gas prices and a housing slump that has yet to bottom.
"The deterioration in credit cards is accelerating faster than many had expected," said Christopher Wolfe, an analyst at Fitch and one of the authors of the report published Friday. "The message we are trying to deliver is that things are going to get worse before they get better. Thus far, credit card businesses have been profitable but that could change."
Fitch analysts are expecting an increase in prime charge-off rates - or losses from defaults on card payments as a percentage of loans outstanding - to at least 7% by the end of the year from 6.4% in May.
Oppenheimer analysts say that according to data from companies covered, borrowers paid back 19.8% of their balance on average in May, down from 20.7% a year earlier. Even as payments fall, credit card debt is rising amid greater joblessness and as declining property values prevent borrowers from using their homes as a piggy bank. The total amount of credit card debt outstanding in April was about $956.9 billion compared to $887.6 billion a year ago, according to Federal Reserve data.
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