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Credit Card Issuers' Reported Profits Should Not Be Taken for Granted

Oct 25, 2009 - 6:30 AM EDT

David Hunkar submits:

Despite the talk of so-called recovery, the real economy is still struggling. U.S. banks are still weighed down by loan losses, especially on consumer loans such as credit card loans. While the losses from credit losses are smaller compared to residential or CRE mortgages, they are still significant to monitor for many reasons, some of which are discussed below.

As unemployment continues to worsen, credit card losses will worsen. Consumers usually first default on credit cards before skipping mortgage or car payments, since credit cards are unsecured. In a recent report on the credit card industry, Credit Suisse analyst Moshe Orenbuch voiced concern over claims that consumer credit is stabilizing. Moshe said, “The combination of continued job losses and increasing bankruptcies means that the improvement in losses is over a year away.’’ A Bloomberg article last month also mentioned that credit card defaults are increasing as the unemployment rate is rising.

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Source: Seeking Alpha (Oct 25, 2009 - 6:30 AM EDT)