Next Blow To Banks: Credit Card Write-Offs (C)(BAC)

The number of reasons that banks may have to be nationalized my have just grown by one. Default rates on credit cards may end up being much higher than had been previously forecast. Most money center banks have significant businesses in consumer lending and results from those are likely to be hit hard.

According to Bloomberg, “The defaults may peak at 10 percent to 11 percent of loans by year end under a stress scenario, Goldman Sachs Group Inc. analyst Brian Foran said.” Concerns about the future of banks pushed Citigroup (C) to a new 52-week low and knocked Bank of America (BAC) down by as much as 8%.

Banks are now faced with a cascading series of problems which began with write-offs of toxic securities and moved to real estate loans, corporate loans, and LBO write-downs.

Odd, if the lowly credit card is the straw that breaks the camel’s back.

Douglas A. McIntyre