Thursday, February 19, 2009

Wall Street comes around on credit cards...

I've been sounding the alarm on the time bomb that is facing banks - credit cards. It seems like Wall Street is finally coming around to this line of thinking.

Credit-card defaults may rise beyond 10 percent this year, breaking records and wiping out more than half of annual profit for lenders including Bank of America Corp. and JPMorgan Chase & Co., analysts said.

Loan failures are about to surpass a previous high of 7.53 percent as people losing jobs amid the U.S. recession can’t repay debt, according to Fitch Ratings. The defaults may peak at 10 percent to 11 percent of loans by yearend under a stress scenario, Goldman Sachs Group Inc. analyst Brian Foran said yesterday in an e-mail, reducing 2009 earnings for issuers including an almost 40 percent cut for American Express Co.

Charge-offs may reach the “mid-teens” in a worst-case scenario, Moody’s Investors Service analysts led by William Black said in a Feb. 4 note. Issuers would have to bolster their securities to prevent them from hitting early payment-triggers and lower-rated securities could be downgraded, Moody’s said.

Sustained defaults at 10 percent could force a major issuer to seek a rescue or sell its credit-card division, said David Robertson, president of the Nilson Report, the Carpinteria, California-based trade newsletter.

So there it is. "Could force a major issuer to seek a rescue" - they're laying the groundwork for Bailout #3. In my opinion, this is just another reason to let the failing banks fail, but Sec. Geithner is too tied to the legacy banks to let that happen.


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