Is This What Recovery Looks Like?

The demise of the credit card crisis has been greatly exaggerated… here’s one for those recovery cheerleaders:

Bank of America (BAC) and Citigroup (C) - which comprise 35% of the entire credit card industry - announced this week that customers are defaulting on their credit cards at the highest rates since the recession began. Bank of America’s charge-off rate registered a whopping 14.5% in August. In other words, for every $7 in credit card debt on BoA’s books, they expect to lose $1.

Other mega-banks and creditors like JP Morgan (JPM), Discover (DFS), Amex (AXP) and Capital One (COF) revealed similar August numbers. It’s an extra-harsh dose of reality for the Street, which enjoyed improving credit default rates this summer, especially in July. We’re a bit less surprised… nearly every measure of loan losses at U.S. banks are still soaring into record territory:

This is a component of our thesis at Agora Financial - that while the credit fallout has been cruel, it has yet to equal the size and scope of the credit bubble that preceded it. We still have quite a mess ahead of us.

Subscribe by RSS Subscribe by Email

Comment by John

2009-09-19 12:02:17

I believe the surge in defaults may be directly related to the banks sudden increases in credit card interest rates. Additionally, the increase in interest rates at this time can be directly associated with the law recently passed against credit cards vendors that restricts them from raising rates once the law goes into effect in 2010. Banks want to get those rates up now before their options run out. This is just another example of our government’s iresponsibility in continually trying to fix a problem that they caused in the first place. The more they continue to do this, the worse the situation will get along with the ‘unintended’ side effect of deteriorating freedom and privacy to US citizens.

Reply to this comment