Lehman report signals lousier credit card offers

Adding to the chorus of voices suggesting you should expect less generous credit card terms, Lehman Brothers issued a report this week that looked at American Express, Capital One and Discover. 

In a research note on Thursday, Lehman analyst Bruce W. Harting predicted ongoing challenges for credit card issuers. "Economic trends including rising unemployment, home price depreciation and liquidity restraints suggest that credit card delinquencies and charge-offs will rise through much of 2009 across the industry," he writes.

That spells trouble for both banks and borrowers. "While there have always been those who don't pay back their credit cards, the magnitude of these nonpayers has increased dramatically and, as importantly, is expected to continue to rise," says "Beyond Paycheck to Paycheck" author Michael B. Rubin. As a result, banks don't get paid back as much as they had expected. "When a financial service firm suddenly finds itself in this position, they reduce their risk and one way to do so is to lend less," Rubin says.

Rubin says the eventual spillover from Wall Street to Main Street will make getting a new credit card or a higher limit on an existing card harder for the average consumer. "Of course, most people aren't average. Those with poor credit are already struggling to refinance debt and those with superior credit can still achieve borrowing terms not available to others," he says.

Lending differences do not depend only on the borrower's credit quality, but also could vary based on the card issuer. "A closer look at company-specific variables -- including age of portfolios, geographic distribution relative to areas with greater home price depreciation and the rate at which delinquencies are charging off (roll rates) at each company -- resulted in a noticeable distinction among the three card issuers we cover in terms of the pace at which credit is softening and how high charge-offs may reach at each," Lehman writes. For example, AmEx is seeing more rapidly increasing delinquencies because of closer ties to areas of the country with sizable declines in home prices, such as California and Florida, compared to Capital One and Discover, which have less exposure to those states.

In other words, if you have bad credit, or an AmEx card, congratulations: You could be among those cardholders to suffer first as delinquencies escalate.

See related: Study: Card issuers squeamish about bringing in new customers, American Bankers Association reports increased card delinquencies, Fitch Ratings: credit card picture will worsen