Do the Major Credit Card Banks have A Nice Healthy Tan?

[flacorps]

In the final stages of alcoholism an alcoholic sometimes looks pretty good ... the jaundice of end-stage liver disease masquerades as a nice healthy tan if you overlook the yellowed eyes.

 

In perhaps the same way, the recent Fitch report on credit cards says the banks' income from them is up, but is it possible that the increased income is due to ratejacking and late fees and other charges which the banks are recognizing as income but will never actually realize as cash into their coffers?

 

My limited knowledge of the arcana of accounting rules for such things doesn't allow for me to say anything certain in this regard. But inquiring minds want to know...

[more credit less cash]

It's just a business whether you like it or not.

[flacorps]

It's just a business whether you like it or not.

 

But the question remains, is it good business or bad business--viable or moribund? The banks' stocks are up even as the overall chargeoff rate crosses 11.52% and is predicted to keep right on going up. Essentially what happened to Advanta Bank is happening to the major credit card banks and nobody seems to be paying any attention.

 

It may not be a business for much longer.

Edited October 13, 2009 by flacorps

[breeze]

I'm with you, flacorps. They're Zombies.

[flacorps]

I'm with you, flacorps. They're Zombies.

 

OK, who has the sewing kit and the rock salt?...

[more credit less cash]

It's just a business whether you like it or not.

 

But the question remains, is it good business or bad business--viable or moribund? The banks' stocks are up even as the overall chargeoff rate crosses 11.52% and is predicted to keep right on going up. Essentially what happened to Advanta Bank is happening to the major credit card banks and nobody seems to be paying any attention.

 

It may not be a business for much longer.

 

Business is a business, no matter how good or bad it is.

 

Let me play devil's advocate - Banks' problem is partly caused by consumers, not just their bad decisions. Isn't defaulting on a loan unfair to business? Afterall, every business has its owners, and business needs money to survive just like consumers need money for basic necessities. Also, business has employees, consumers like us. If a business is closed, its employess will be out of work and they could end up defaulting on loans and another business is closed and so on... if a major bank goes out of business, what will happen to thousands of employees? personal and business loans/securities backed/held by it? domino effect?

 

What then? Is it still good or bad? fair or unfair? to whom?

[flacorps]

OK, the government spends a lot of time and effort and money trying to save people from themselves. By your argument shouldn't the same apply to businesses?

 

Either the government demands the major credit card banks ameliorate their interest and fees in return for the substantial subsidies and relaxations of capitalization rules that are being provided....

 

or

 

The government should let the big banks go bust on account of their improvident lending and allow the junk debt buyers to clean up the mess (which is the Advanta Bank scenario ... they didn't get any TARP money and their ratejacking has resulted in losing nearly all their customers to chargeoffs over the course of a few months. All business debt, all personally guaranteed. The JDBs may have a tough time collecting on those personal guarantees too.).

 

Right now the policy is schizophrenic: trying to preserve the economy by propping up bad actors whose policies are destroying the economy.

 

This is a question of economic policy and not politics ... Congress can only muck up what will doubtless be clear if proper modeling is applied...

 

But all that is beside the point. The point is that right now the stock market and the press is missing the picture that is being painted by things like Ann Minch's YouTube debtors' revolt, and that is an ugly picture of the credit card banks forcing consumers to their knees, after which the consumers will stand up, light torches and together go take a whack at them with whatever implement comes to hand.

Edited October 13, 2009 by flacorps

[more credit less cash]

OK, the government spends a lot of time and effort and money trying to save people from themselves. By your argument shouldn't the same apply to businesses?

 

Either the government demands the major credit card banks ameliorate their interest and fees in return for the substantial subsidies and relaxations of capitalization rules that are being provided....

 

or

 

The government should let the big banks go bust on account of their improvident lending and allow the junk debt buyers to clean up the mess (which is the Advanta Bank scenario ... they didn't get any TARP money and their ratejacking has resulted in losing nearly all their customers to chargeoffs over the course of a few months. All business debt, all personally guaranteed. The JDBs may have a tough time collection on those personal guarantees too.).

 

Right now the policy is schizophrenic: trying to preserve the economy by propping up bad actors whose policies are destroying the economy.

 

This is a question of economic policy and not politics ... Congress can only muck up what will doubtless be clear if proper modeling is applied...

 

But all that is beside the point. The point is that right now the stock market and the press is missing the picture that is being painted by things like Ann Minch's YouTube debtors' revolt, and that is an ugly picture of the credit card banks forcing consumers to their knees, after which the consumers will stand up, light torches and together go take a whack at them with whatever implement comes to hand.

 

Unfortunately, people have to save themselves. Government is trying to buy some time for economy to turn around.

 

Also, you are avoiding my question and also your own question. So is it still good or bad? fair or unfair? to whom?

[GEORGE]

In the final stages of alcoholism an alcoholic sometimes looks pretty good ... the jaundice of end-stage liver disease masquerades as a nice healthy tan if you overlook the yellowed eyes.

 

In perhaps the same way, the recent Fitch report on credit cards says the banks' income from them is up, but is it possible that the increased income is due to ratejacking and late fees and other charges which the banks are recognizing as income but will never actually realize as cash into their coffers?

 

My limited knowledge of the arcana of accounting rules for such things doesn't allow for me to say anything certain in this regard. But inquiring minds want to know...

Some guy at work has a PURPLE face

 

The people said he drinks to excess

[flacorps]

Also, you are avoiding my question and also your own question. So is it still good or bad? fair or unfair? to whom?

 

Bad business, unfair, impracticable and financially unsurvivable for both the banks and the consumers.

 

Consumers, however, by and large will not go to their graves over this (though they may go with it).

 

So the question becomes ... Will we be like Japan? Argentina? Zimbabwe? ... or can we do better than all three?

[flacorps]

Bank of America reporting earnings today ... and their loans to consumers continue to be a huge trouble spot for them. They lost 26 cents a share ($1 billion), more than analysts expected.

[flacorps]

It turns out Bank of America's losses from lending operations were about $10 billion ... offset by $9 billion in "trading profits" (the latter are easily manipulated, may not be producing cash flow ... and can carry enormous risk [which they likely actually do]).

 

Ann Minch was on Suze Orman (there will be a replay Fri 10/23)--she got a whole half hour. You can also get a podcast at

http://podcast.cnbc.com/mmpodcast/suzeormanshow.xml once CNBC gets around to putting it up.

 

Ann has responded to the segment as it aired.

http://www.youtube.com/watch?v=ytBJ2BVDoqA

 

What she has started is rolling folks, and the big five (BofA, Citi, HSBC, Wells and Chase) had better quake...

[flacorps]

Only one press source is reporting this for the moment ... Moody's expects the credit card default rate to continue to increase, peaking at 13% in the summer of 2010:

 

Moody's Investors Service said yesterday that Americans keep falling further behind on their credit card bills. "We expect the charge-off rate [to] peak between 12 percent and 13 percent" next summer, analysts Jeffrey Hibbs and Will Black wrote.

 

Moody's also cut its "baseline" rating on Bank of America Corp.'s Wilmington-based credit card arm to from Baa3 to Ba1 with possible future cuts to come.

 

Moody's cited both the weak economy and "structural changes in the credit card industry" because of stricter federal regulation, which makes it harder for banks to raise rates on people with bad credit records.

 

It expects "sizable net losses" at BofA's card arm, the nation's largest credit card business, this year and next.

 

What will BofA do about that? Moody's predicts "tightened credit and collections initiatives," and notes the parent company has already given the card group "substantial cash infusions."

 

 

http://www.philly.com/inquirer/business/65...?cmpid=15585797

[hegemony]

the sector has treated me well since 2009...