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Expect credit card offers to worsen into 2009

Daniel Ray

The Baltimore-based financial advisory firm First Annapolis, in its latest newsletter, dove into the quarterly results of the biggest credit card issuers and came up with a telling chart, a portion of which I’ve reproduced below.

I know, I know, it’s a lot of numbers, but bear with me.

The numbers say, in general, that Americans are still increasing their credit card spending, but their credit card issuers are hurting, and passing along their pain to consumers, and will continue to do so into next year.

As First Annapolis put it, “… (T)he second quarter loss rates of several issuers were above their 2008 guidance, causing pessimism on loss rates for some to extend into 2009.”

The company adds: “To offset eroding credit quality, re-pricing actions and general credit tightening continued against the backdrop of increasing regulatory scrutiny and possible legislative actions.”

Translation: “Re-pricing” means increasing rates. “General credit tightening” means worse offers for consumers.

Here are the numbers.

Credit card issuers under pressure

Issuer

A/R ($B)
2Q ’08

Change (vs. 2Q ’07)

Purchase volume ($B) 2Q ’08

Change (vs. 2Q ’07)

Net loss rate

Change (vs. 2Q ’07)

Change (vs. 1Q ’08)

Bank of America

$163.3

9.8%

$61.0

6.7%

-0.4%

0.144%

0.098%

Chase

$155.4

5.0%

$93.6

6.4%

5.0%

0.136%

0.061%

Citi

$151.2

4.1%

$83.8

0.4%

6.5%

0.202%

0.072%

Capital One

$68.1

3.8%

$26.7

-0.8%

6.3%

0.270%

0.041%

American Express

$64.7

10.4%

$100.0

5.7%

6.5%

0.280%

0.120%

Discover

$47.1

0.6%

$22.5

1.6%

5.1%

0.108%

0.068%

Wamu

$26.4

5.8%

NA

NA

10.8%

0.435%

0.152%

Sum or weighted average

$676.2

6.0%

$387.6

3.0%

3.0%

0.191%

0.080%

Notes: A/R means accounts receivables — essentially, the volume of credit card debt. (B) means billions. The figures include U.S. only — consumer plus business credit card. Capital One’s numbers excludes cash advances. The sum/weighted row excludes Wamu.

First Annapolis is a M&A (merger and acquisition) advisory service, so the conclusion it draws is to expect little M&A activity, since card issuers are turning inward to fix their own businesses, not looking outward.

As someone with a consumer focus, what I draw from this jumble of numbers is a bit different:

If you have a credit card, increase the amount of attention you pay to your credit card bill.

Your credit card company is likely under more pressure than at any time in recent memory. It’s under pressure to make more money because its profits have been trimmed. In many cases, your card issuer also has a sickly corporate cousin that’s taken a beating in the mortgage market.

In short, there’s a strong wind blowing your credit card issuer toward increasing rates, lowering credit lines and dinging you with new or larger fees.

Remember that under current law, your card issuer can change the terms of your borrowing at any time, for any reason, with 15 days’ advance notice.

So read your monthly credit card bills closely. One of them is likely to have bad news, and soon.

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