The consumer is bled dry. That is the message from an earnings warning at Capital One (COF). Mortgage lending was getting bad, but the latest news is that auto and credit card lending are falling apart.
According to The Wall Street Journal "Capital One is expected to announce today that it expects charge-offs of $5.9 billion in 2008, up from its October forecast of $4.9 billion to $5.5 billion, partly because of worsening economic indicators that include rising unemployment."
Unlike firms including Countrywide (CFC) and Washington Mutual (WM), Capital One makes most of its money on car and credit card loans. There was some hope that the consumer might dodge the problems that had infected a portion of the mortgage market. People who could afford to pay their home loans might just be able to cover the costs of their cars and daily borrowing as well.
But, consumers have nothing but lint in their pockets now. They were the last, best hope that GDP was not likely to move into reverse.
Now, the question is how bad it will be and for how long.
Douglas A. McIntyre
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