Earth Equity News

Banks Waiting for the Other Shoe to Drop: Credit Card Defaults. By Christina Rexrode, McClatchy Newspapers, October 28, 2008. "First came trouble with mortgages, then home equity loans and commercial real estate. Now, banks are starting to worry about credit cards... To be sure, credit cards don't represent a huge portion of assets for most banks. For example, they comprise about 14 percent of all consumer loans and leases at Bank of America, the country's largest credit-card issuer. The main problem is that 'everyone is so weak after what happened with mortgages that another blow to a consumer product would be hard to handle.' Said Laura Nishikawa, an analyst at the Innovest ratings agency... Bank of America's charge-offs, or loans it doesn't expect to collect on, increased to 6.14 percent of all credit-card loans, or $1.24 billion, in the third quarter. That's up from 4.61 percent the year before... Executives of Wells Fargo & Co., which is buying Charlotte's Wachovia Corp., also noted credit-card troubles in their recent earnings call. The San Francisco bank, which is the country's eighth-largest credit-card issuer according to The Nilson Report, saw credit-card charge-offs increase to 7.2 percent, or $361 million, from 4.3 percent a year ago... Innovest predicts that credit-card charge-offs across the industry will continue to rise, peaking around 10 percent by the first quarter of 2009. Some banks are also reporting that consumers are spending less with their credit cards, which hurts the banks because they collect fees from merchants every time a consumer uses a card... Even so, credit card defaults probably won't wreak as much havoc as mortgage defaults already have, because they're on a much smaller scale... U.S. consumers have less than $1 trillion in outstanding credit-card loans, but more than $10 trillion in outstanding mortgage loans... The average person owes a lot more on her house than on her credit cards."