Credit Cards Loosing Banks Millions

Even as Washington Mutual Inc lost billions of dollars from risky mortgages, the largest U.S. savings and loan could rely on its credit card business to turn a profit. No longer.
The thrift's $175 million second-quarter loss from its card unit stemmed from higher delinquencies and an inability to sell some card debt to investors because of illiquid markets. It was Washington Mutual's first card loss since it entered the business in 2005 when it bought Providian Financial Corp.
Washington Mutual is not alone. American Express Co, Bank of America Corp, Capital One Financial Corp, Citigroup Inc and JPMorgan Chase & Co face pressure as falling home prices, $4-a-gallon gas and rising food costs leave more cardholders struggling to pay their bills and force even wealthy customers to spend less.
"It is a bleak picture out there," said Curtis Arnold, founder of CardRatings.com in Little Rock, Arkansas. "Consumers are definitely feeling the pinch and delinquency rates are ticking up. I think the worst is still ahead of us."
U.S. consumer credit outstanding totaled $2.57 trillion at the end of May -- roughly $8,400 per person -- and up 68 percent from the start of the decade, Federal Reserve data show.

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CUTTING BACK
For much of the decade, lenders raised card limits rapidly as consumers tapped into equity in their appreciating homes to borrow and moved toward plastic and away from cash and checks as a means of payment.
But many consumers became overextended and further burdened as many card rates soared well above 20 percent and as charges such as $39 late payment fees and 3 percent fees on foreign currency transactions became the norm.
Caution has set in. The Reuters/University of Michigan survey of consumer confidence in June fell to a 28-year low. And while the preliminary July reading did edge higher, many consumers believe the country is in an economic recession. Billionaire Warren Buffett has said so several times.
American Express, a bellwether for the consumer economy, posted a surprise 38 percent decline in quarterly profit on Monday and withdrew its target for earnings growth.
"The credit situation in the U.S. is disappointing," Chief Executive Kenneth Chenault said on Monday.
He said even "very affluent people who have had historically very, very strong spending history with us" are cutting back.
"American Express is like a surfer riding on the economy: they can control where they go, but only to a limited degree," said Andrew Boord, an analyst at Fenimore Asset Management Inc in Cobleskill, New York, which invests $2 billion.
He noted that Amex cards are also widely held by middle- class customers, "the same folks who bought more houses than they should have, or a lot of people who are driving SUVs with a huge gas bill. It's not just the super-wealthy ."

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HOUSING WOES TRIGGER BANKRUPTCIES
Bank of America and JPMorgan each said the rate of net charge-offs in its card portfolio rose by a double-digit percentage in the second quarter from the first.
Cards also weighed on Citigroup. Increases of 67 percent in credit losses and 37 percent in reserves were among the factors leading to a $2.5 billion quarterly loss for the bank.
"The rate at which delinquent customers advance to write- offs has increased," Chief Financial Officer Gary Crittenden said last week. "This is especially true in certain geographic areas where the impact of events in the housing market has been greatest."
Housing problems are also causing more bankruptcies. Filings have risen from historic lows that followed a 2005 law change pushed by the card industry and which has made it tougher for people to walk away from their debts.
In the January-to-March period, personal bankruptcy filings nationwide rose 26.5 percent from a year earlier to 236,982, government data show. But in six states hit hard by the housing crisis -- Arizona, California, Florida, Michigan, Nevada and Ohio -- the increase in filings was 45.2 percent.
"Folks in the boom and bust markets certainly are having a tougher time," Capital One Chief Executive Richard Fairbank said last week. "We haven't seen any relief of that effect."

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Arnold said relief will not likely be forthcoming this year for card lenders. Or for consumers.
"For a lot of consumers, when credit gets tight, they turn more and more to credit cards, even to buy necessities such as food and gas, the things they need day to day," he said. "If we get some relief at the pump or in food prices, that will help, but so much of that is up in the air right now."