Tags: credit | card | losses

Report: Credit Card Losses Will Get Worse

Wednesday, 09 Sep 2009 10:10 AM

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Standard & Poor's said on Tuesday U.S. credit card losses declined in July, but forecast bad loans would soon resume their upward trend as thousands of Americans lose their jobs.

The ratings agency's credit card quality index, which measures credit card loans that banks do not expect to be repaid, fell to 9.8 percent in July from a record high of 10.4 percent in June, helped by more cautious consumer spending.

Analysts have also said loan losses eased as consumers used more tax refunds to pay down debts.

But S&P estimated credit card losses would pick up again as the economy continues to shed thousands of jobs every month in the worst recession since the Great Depression.

Credit card losses usually follow unemployment, which rose to a 26-year high of 9.7 percent in August.

S&P said that, considering its own estimates that unemployment would rise to between 10.4 percent and 12.7 percent, credit card losses rates could go up to between 10.5 percent and 13 percent and "remain in this range for the next 12 to 24 months."

S&P said losses could also be boosted by company moves to increase fees and interest rates before limits on those charges come into effect in February 2010.

In aggregate, S&P's credit card quality index tracks the performance of more than $491.1 billion of receivables held in trusts of rated U.S. credit card-backed securities.

American Express Co, Bank of America Corp, JPMorgan Chase & Co, Citigroup Inc, Capital One Financial Corp and Discover Financial Services make up around 80 percent of the credit card industry.

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