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Monday, June 15, 2009 2:06 PM


Capital One Chargeoffs Rise To 9.4%; American Express Chargeoffs 10%; Card Issuance Drops 50%


Credit cards losses are accelerating at Capital One, a trend one should expect to continue given the rapidly rising unemployment rate. Interestingly, Capital One is returning TARP funds.

Please consider Capital One Card Write-Offs Advance to 9.4 Percent.

Capital One Financial Corp., the Virginia credit-card lender that’s returning federal bailout money, said uncollectible U.S. card loans rose in May.

Capital One wrote off 9.41 percent of U.S. card loans on an annualized basis, compared with 8.56 percent reported for April, the McLean-based bank said today in a federal filing. Loans 30 days or more overdue declined to 4.9 percent from 5.04 percent.

Charge-offs for international loans advanced to 9.77 percent from 8.91 percent, and auto finance climbed to 3.62 percent from 3.46 percent.
American Express Card Write-Offs 10 Percent

Bloomberg is reporting American Express Posts Card Write-Offs at 10 Percent.
American Express Co., the largest U.S. credit-card company by purchases, said uncollectible loans declined in May, aided by the sale of consumer debts written off in previous months.

American Express wrote off 10 percent of managed U.S. card loans, compared with 10.1 percent for April, the New York-based company said today in a federal filing. The decline reflects proceeds from selling bad loans that were already charged off, the filing said.

Loans 30 days or more overdue at American Express declined to 4.7 percent from 4.9 percent in April, while at Capital One, based in McLean, Virginia, late payments fell to 4.9 percent from 5.04 percent. Capital One estimated its charge-off rate was understated by half a percentage point, citing a surge in the number of bankruptcies that delayed processing of that data.
Banks Reduce Credit Card Mailings

Looking ahead expect these numbers to get much worse. Odds are unemployment continues to rise for a year or longer after the end of the recession is announced. And with each uptick in unemployment chargeoffs will increase.

Is it any wonder Banks Reduce Credit Card Mailings?
A major shift in the kinds of direct mail that banks send out occurred last quarter, according to Mintel Comperemedia, a firm that tracks direct mail advertising.

Overwhelmed by delinquent debt and facing a new law that will almost certainly make credit cards less profitable, banks sent out only about 500 million credit card solicitations in the first quarter, half as many as in the last three months of 2008. That is fewer than in any year since 2000.

At the same time, banks cranked out more ads for safer but less profitable products like checking accounts (up 29 percent) and stand-alone debit cards (up 96 percent).
Don't believe what banks are saying. Believe what banks are doing. And what they are doing is cutting credit.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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