Posted by Larry Doyle on June 16th, 2010 1:30 PM |
In the midst of challenging twists and turns along our economic landscape, I find it heartening to come across a bit of positive news.
Declining credit card delinquencies should be juxtaposed to the fact that mortgage delinquencies continue to increase. That divergence indicates to me that American homeowners are making their card payments prior to their mortgage payments. Why? Banks will quickly pull their cards while working with homeowners to modify their mortgages and allowing them to remain in their homes for an extended period. (more…)
Posted by Larry Doyle on October 20th, 2009 11:16 AM |
Life is not fair.
While many topics could be placed into that all consuming category, the ongoing developments in the credit card industry certainly get top billing. Why?
High five to MC for once again pointing out the ever increasing and seemingly indiscriminate denial of consumer credit. Am I referring to creditworthy individuals applying for a credit card or other form of consumer credit? No!
I am referring to individuals who at point of purchase are discovering that their credit cards are being denied. These must be one off situations or for those already delinquent, correct? Not necessarily. As MSNBC highlights, Citi Starts Closing Mastercards Without Warning:
Shannon Burdette tried to pay with her Shell Mastercard after filling up her gas tank this weekend but found the card rejected.
Confused, she called the customer service line on the back of the card, issued by Citibank, and was told the account was closed because of something that appeared on her credit report. But when the Sykesville, Md., resident got a copy of her credit report online, the only negative thing she saw was “closed at credit grantor’s request” on the Shell MasterCard account.
“They said there was a routine review,” said Burdette, who maintained that she and her husband, Brian, used the card regularly and always paid the bill on time. (more…)
Posted by Larry Doyle on August 24th, 2009 3:20 PM |
Why are banks tightening credit to the extent that they are extending credit at all? The mere fact that so many of their current loans and credit lines are increasingly delinquent and defaulting. Of the largest credit card outfits, one bank stands out as holding the worst performing credit card portfolio. Who might that be? Bank of America.
In fact, by banking standards Bank of America’s credit card portfolio would be considered sub-prime. Bloomberg highlights this development in writing, Bank of America Shuns Sales of Card Debt, Ducks Subprime Label:
Bank of America Corp., saddled with the worst credit-card default rates among its biggest rivals, is shunning the asset-backed securities market it tapped for $13.7 billion last year.
JPMorgan Chase & Co., Citigroup Inc. and American Express Co. are among issuers that sold $21 billion of card-backed debt this year through the Term Asset-Backed Securities Loan Facility, a Federal Reserve lending program to spur bond sales. Bank of America, the only major card-issuer that didn’t sell any, lacks enough quality loans in its credit-card trust to sell TALF bonds without being labeled a subprime issuer.
“I don’t doubt that Bank of America would like to re- engage that market,” said Michael Nix, who helps manage $600 million, including shares of the lender, at Greenwood Capital Associates in Greenwood, South Carolina. “The credit-card securitization market is starting to thaw, but there still isn’t a lot of demand, so the cost of issuance may be higher than the bank thinks is worthwhile.”
Christopher Feeney, a spokesman for Charlotte, North Carolina-based Bank of America, declined to comment.
Bank of America’s 13.82 percent credit-card default rate in July, the highest among the biggest lenders, helps explain why loans in its credit-card trust are shy of the threshold that would allow it to sell debt through TALF and be labeled a prime issuer
Why is BofA’s credit card portfolio so much worse off than its major competitors and what are the implications of this reality? (more…)
Posted by Larry Doyle on August 20th, 2009 3:14 PM |
When a company, which is a ward of the state, increases credit card fees can it be said to be the equivalent of a tax increase? I believe it can. In that vein, Citigroup is raising taxes on its credit cards by initiating annual fees. The Wall Street Journal highlights this development and reports Citigroup to Initiate New Annual Fees on Some Credit Cards:
Citigroup Inc. is instituting annual fees on some current credit-card accounts in an attempt to offset strict new legislation that could dent its profits.
The move comes on the heels of several warnings from the banking industry, which has said that issuers would be forced to rewrite the playbook on plastic because new credit-card laws would take a bite out of their income.
Rates of between 20% and 30% aren’t sufficient for income purposes? The fact is, current card holders are paying for the undisciplined lending practices of the bank over the last 5 years.
These laws include new limits on interest-rate increases on existing balances and greater disclosures.
The legislation was written to prevent abusive practices on the part of the banks. The fact that it allows for the implementation of practices such as these paints the legislation as the equivalent of a ‘show trial.’ (more…)
Posted by Larry Doyle on July 9th, 2009 7:54 AM |
Is there truly any reason to trust financial institutions these days?
Developments within the credit card space have exposed the true colors of these institutions . . . not that there was ever any doubt. Recall how consumer outrage at rapidly rising interest rates on credit cards pressured Washington to rein in the usurious business practices of the financial industry.
New legislation was badly needed as banks clearly utilized abusive business practices. The Wall Street Journal highlighted these developments in writing on May 21st, Credit-Card Fees Curbed:
“Credit cards are a tremendously valuable and useful tool for consumers, providing them with relief during critical moments,” said Senate Banking Committee Chairman Christopher Dodd. “This is a very important industry….We just want it to work better.”
The legislation marked a major defeat for the credit-card industry, as lawmakers complained that consumers are being hit with tricks and traps on their cards.
Well, while the legislators were in the front room having the photo ops, the bankers were in the back room building a new and better mousetrap, at least from their perspective.
The Los Angeles Times sheds light on how Credit Card Firms Try End Run Around New Federal Rules:
Banks are quietly changing the terms of millions of credit card accounts as they brace for a tough new law that will limit rate hikes.
The law would restrict interest rate increases unless a credit card has a variable rate. So at least two major lenders are switching their cards with fixed rates to — you guessed it — variable rates.
“It’s completely unfair,” said Linda Sherry, a spokeswoman for Consumer Action. “It’s an end run around the intent of the new law.”
That law is the Credit Card Accountability, Responsibility and Disclosure Act, which President Obama affixed with his signature in May. Its various provisions will be phased in between next month and February.
Who are these two major lenders? Bank of America and JP Morgan Chase. Given the size of their operations, watch every other credit card issuer set the same trap. (more…)
Posted by Larry Doyle on March 24th, 2009 8:47 AM |
I have written at length about the problems within the banking, insurance, hedge fund, and consumer finance industries over the last 6 months. While the bulk of the media focus has been on the banking industry – and primarily the large money center banks – the erosion in asset values at these other financial companies has been accelerating.
This past Sunday evening on my weekly radio show, NQR’s Sense on Cents with Larry Doyle, I spoke extensively about the massive financial shortfall within the insurance industry. In addition, relatively early on I warned that the hedge fund industry had likely been severely mismarking many investments. From a piece I wrote on November 12, 2008:
Give it time, because hedge funds do not have to report to anybody as to what their positions are and where they have them marked. There is no doubt they have positions that are grossly mismarked and have many positions that are totally illiquid. For many investors in these funds, these are truly “roach motels.” Hedge funds will sell what is most liquid when they can to meet redemption requests. We should expect a significant number of hedge fund liquidations, consolidations, and out and out disasters.
The same can be said for a number of private equity shops. Consumer finance companies with large holdings of a variety of consumer assets are fighting for their lives as delinquencies and defaults on these assets ratchet higher. (more…)
Posted by Larry Doyle on March 22nd, 2009 9:36 PM |
In case you missed LD’s Sunday night radio show, just click on the Play button below for the audio recording. Once the playback has started, you can fast forward or rewind to any portion of the show by clicking at any point along the play bar.
The first portion of the show included a review of the markets and an in-depth analysis of the very critical challenges facing the insurance industry.
The second half of the show included an interview with Chuck Doyle of Business Capital in San Francisco. Chuck is one of the leading professionals in the field of debt restructuring and recapitalization.
Sunday night, March 22nd, 2009
NoQuarter Radio’s “Sense on Cents with Larry Doyle”
Posted by Larry Doyle on March 21st, 2009 2:11 PM |
Many credit card companies are now offering incentives for a wide range of their customers to “take their business elsewhere” and return their cards in the process. Are these companies trying to turn business away? Have they expanded too rapidly? Are they having operational issues? Are they afraid of what the future holds? In a word, the simple answer to all those questions is YES!!
Credit card companies are already experiencing a significant increase in delinquencies and defaults and expect both those figures to ratchet higher in the face of rising unemployment. (more…)
Posted by Larry Doyle on March 20th, 2009 8:56 AM |
In the midst of all the wrangling in Washington, Wall Street, and literally all around the world, the biggest concern for everyday Americans is the accessibility of credit. I am sure everybody reading this post has either had issues gaining credit or knows of people who have had issues gaining credit. The knee jerk reaction for this lack of credit is to lash out at those big, bad banks. Well, those big, bad banks along with their smaller counterparts only provide approximately 50% of the consumer credit in our economy.
Where did the other 50% of credit emanate and where did it go? Welcome to the world of asset-based financing and in turn Asset-Backed Securities. I highlighted back on November 12th that the Wall Street Model is Broken…and Won’t Soon Be Fixed. Well, the breakdown and discontinuation of the ABS market is truly the equivalent of the total collapse of one of your lungs. Try to go about your daily business and all of your activities with access to only half the oxygen supply as normal. Might get a little winded? Might struggle to perform? Might tire rather quickly? Might be less efficient and productive? Well, folks, given the shutdown of the ABS market that is exactly what our economy has been experiencing. (more…)