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Wednesday, April 23, 2008 10:25 AM

Card Losses Soar at Target, Bank of America

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Bloomberg is reporting Target Writes Off 8.1% of March Credit-Card Loans.

Target Corp., the second-largest U.S. discount chain, said it wrote off 8.1 percent of its credit-card loans in March as consumers grappled with job losses and the biggest housing slump in a quarter century.

Defaults during the month totaled $55.5 million, the Minneapolis-based retailer said in a regulatory filing today. The charge-off rate was 6.8 percent in February.

Target's credit-card performance continues to deteriorate, and the charge-offs are at the highest level since the implementation of new bankruptcy laws more than two years ago, Michael Exstein, an analyst with Credit Suisse Group in New York, wrote in a report today. Thirty-day delinquencies are at their highest rate since 2001, he wrote.

Target was is in talks with JPMorgan Chase & Co. to sell about half of its credit-card loans for $4 billion, a person with knowledge of the negotiations said in March. The person declined to be identified because the talks were in progress.

Target said last month it was speaking with a potential partner it didn't name to sell a portion of the $8.3 billion portfolio to fund new stores and a $10 billion share buyback.
Half-Baked Idea

Selling credit card assets seems reasonable enough, except they would have been wise to do it a year ago when those assets would have fetched top dollar. Given that chargeoffs are at 8.1% and rapidly rising, and given the ongoing credit crunch, those assets will be worth far less today. A year ago there may have been a bidding war for them. Not today.

However, those assets will likely be worth less tomorrow so selling is still a reasonable move. But the idea of using the proceeds to fund share buybacks in this environment is complete foolishness.

Why is it so hard for corporations to raise cash and just sit on it? There will be plenty of things to put that cash to good use later on as this recession deepens.

Credit Card Losses Rise In Housing Bubble Areas

Bank of America is also getting hit with credit card losses. I talked about that in
Litany of Negative Issues at Bank of America.
The bank said credit card losses in particular were rising in areas hit hard by housing troubles, including Arizona, California, Florida and Nevada.

"Credit card borrowers are feeling some of that strain," Chief Financial Officer Joe Price said in an interview. "It's most acute in states with the greatest home price depreciation, although you see some stress across the nation where you have impact from the economic slowdown."
Consumers are soon going to be walking away from credit card debt. Rising unemployment will seal the deal. Look for bankruptcies to soar.

Mike "Mish" Shedlock
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