Submitted by Naomi M on Sat, 01/03/2009 - 17:07.
Credit Card Companies Brace for More Losses in 2009 and Beyond
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U.S. households took on an additional $8 trillion in debt over the past decade as the housing boom drove home owners to get cash out of their equity through refinancing or equity home loans, according to a recent article in Reuters. This, in turn, made consumers less interested in saving their money to nearly nill.
Now overwhelmed with debt, these poor choices made by consumers has resulted in a steep rise of credit card payment defaults as the next shoe is about to drop with a thud on credit card issuers, namely, the consumer debt bubble popping.
U.S. consumers have never before been so deeply in debt. There was nearly $1 trillion of credit and charge card debt outstanding as of October, up more than 25 percent since 2003, according to the U.S. Federal Reserve. That is in addition to $10.54 trillion in mortgage debt.
Unemployment, already at 15-year highs, is expected to rise to its highest levels since the early 1980s, when credit cards were not nearly as widespread. Bottom line...there's more debt than ever and fewer people are able to pay it.
No credit card company is safe
Losses for the credit card industry could top $70 billion, but it is hard to predict how bad the pain will be.
According to Citigroup analysts, more than one-fourth of the credit card portfolios of Citibank, Bank of America Corp, Capital One Corp, and Discover are subprime, which could lead to further losses.
Meanwhile, American Express is heavily exposed to troubled markets with high default rates such as Florida and California, and J.P.Morgan Chase & Co has to digest the portfolio of failed savings and loans company Washington Mutual.
Together, these six companies hold around 90 percent of the total U.S. outstanding credit card debt.
Credit card companies have reported increased losses. Discover, the No. 4 U.S. credit card network, posted worse-than-expected results in its fourth fiscal quarter, the first sign of the harsh deterioration of the industry, when the economic downturn picked up steam in October and November.
Discover almost doubled the money it set aside to cover credit losses. Analysts said its competitors would likely do the same in coming quarters, leading to lower earnings.
Source:reuters.com/article/newsOne/idUSTRE4BU4ID20090102
Now overwhelmed with debt, these poor choices made by consumers has resulted in a steep rise of credit card payment defaults as the next shoe is about to drop with a thud on credit card issuers, namely, the consumer debt bubble popping.
U.S. consumers have never before been so deeply in debt. There was nearly $1 trillion of credit and charge card debt outstanding as of October, up more than 25 percent since 2003, according to the U.S. Federal Reserve. That is in addition to $10.54 trillion in mortgage debt.
Unemployment, already at 15-year highs, is expected to rise to its highest levels since the early 1980s, when credit cards were not nearly as widespread. Bottom line...there's more debt than ever and fewer people are able to pay it.
No credit card company is safe
Losses for the credit card industry could top $70 billion, but it is hard to predict how bad the pain will be.
According to Citigroup analysts, more than one-fourth of the credit card portfolios of Citibank, Bank of America Corp, Capital One Corp, and Discover are subprime, which could lead to further losses.
Meanwhile, American Express is heavily exposed to troubled markets with high default rates such as Florida and California, and J.P.Morgan Chase & Co has to digest the portfolio of failed savings and loans company Washington Mutual.
Together, these six companies hold around 90 percent of the total U.S. outstanding credit card debt.
Credit card companies have reported increased losses. Discover, the No. 4 U.S. credit card network, posted worse-than-expected results in its fourth fiscal quarter, the first sign of the harsh deterioration of the industry, when the economic downturn picked up steam in October and November.
Discover almost doubled the money it set aside to cover credit losses. Analysts said its competitors would likely do the same in coming quarters, leading to lower earnings.
Source:reuters.com/article/newsOne/idUSTRE4BU4ID20090102
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