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Credit Cards doom and gloom

So I blog about credit
cards not being the major issue yesterday and then realise that it is
unsecured debt worth billions.  Just in the USA, credit card debt nears
$1 trillion.  Therefore, just to show that it cannot be discounted
after all, the Wall Street Journal runs a report yesterday that shows AMEX and Capital One struggling with their high-end consumer delinquencies. 

Citigroup and JP Morgan Chase are reporting fourth-quarter results this
week and "are expected to set aside hundreds of millions of dollars to
cover mounting losses on credit cards and other consumer loans … 

isn’t an AMEX issue, it’s an industry issue. We have started to see a
spillover from the mortgage market and the weaker economy into credit
cards’, said Christopher Brendler, an analyst at Stifel Nicolaus in

Mind you, this is just picking up on an earlier article in SmartMoney.com which states:

home equity dried up, consumers are piling up credit-card debt at a
rapidly increasing pace. As of the third quarter of 2007 (the latest
for which data is available), credit-card balances increased by 7% on
an annualized basis, according to statistics compiled by market
research firm TowerGroup. Compared to the average annual increases of
2% over the previous six years …

"In the third quarter of 2007,
delinquency rates — the ratio of the dollar amount of loans 30 days or
more past due to the amount of total loans outstanding — at the
country’s 100 largest banks crept up to 4.47%, from 4.24% for the same
period in 2006, according to Federal Reserve statistics. During the
real-estate boom years (2004 to early 2006), when homeowners easily
refinanced mortgages or took home equity loans to pay off mounting
credit-card debt, delinquency rates rarely surpassed 4%. Charge-offs,
or debt that has been removed from the banks’ books and declared a
loss, are also on the rise, at 4% at the end of the third quarter,
compared with 3.84% a year earlier."

I then see a CNBC headline that says "Citigroup’s Layoffs Could Reach 24,000 This Year" after they post a near $10 billion loss. 
That’s good news as it’s smaller than the $15 billion+ forecast by some
… oh, wait a minute, that’s a $10 billion loss for one quarter! 

Next, there’s an article from The Deal stating that the US is entering the worst banking era since 1989:

a climate that harks back to those bad, old days, the U.S. commercial
banking system, led again by star-crossed Citi, again finds itself at
the center of a debt crisis caused by real estate and leveraged
lending. Once again the largest banks are suffering through steep
share-price declines, hoarding cash, pitching foreigners to invest and
considering dividend and job cuts. A credit crunch spurred by banking
ills threatens to shove the economy into recession. Meanwhile, industry
participants, regulators and legislators are wringing their hands over
the future, wondering where the bottom lies.

"After almost 20 years of banking deregulation, consolidation, diversification  and globalization, has so little changed?"

Just to cap it all off, I then get the Sovereign Society’s news that we’re going the same way as the USA:

the British pound become the ‘dollar of 2008?’ In other words, will
currency investors batter the pound as much as they killed the dollar
last year … Look at the fundamentals:

  • In the fourth quarter, U.K. house prices fell 0.8% – the first time this has      happened since 2000.
  • Retail
    sales rose only 0.3% in December, smack in the middle of the holiday
    season. That’s the slowest pace in 21 months.
  • Core prices in
    the U.K. are at the lowest level in 13 months – wiping away the Bank of
    England’s need to fight inflation.
  • The savings ratio among
    Britons has dropped below zero for the first time since the late 1980s
    and household debt service makes up a whopping 14% of incomes."

Oh dear …

… and it’s still raining in London but it’s now very windy as well. There’s a storm coming.

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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