Credit Card Industry In Jeopardy, Bank Of America Looking To Overhaul Business
As the economic crisis continues, it seems that it is not only the regular American consumer who is finding it difficult to manage their finances. Credit card companies are also facing a very dim financial outlook. While some of the major credit card companies were saved from the brink of bankruptcy early this year with government bailouts, complete financial turnaround is still a long way off.
Proof of the continuing problems that credit card companies are facing is Bank of America’s announcement of their plans to overhaul their credit card business. This comes after the company posted quarterly losses for the fifth continuous period. The company’s total losses amount to a total of $4.7 billion and there is no sign of profit in the immediate future.
Kenneth D. Lewis, Chief Executive Officer of Bank of America said to analysts, “We have a lot of people looking at the business and looking at the changes that need to be made both in infrastructure and other ways we can make money”. This came after the North Carolina based company posted another quarterly loss, its second in less than a year.
The obvious culprit of the difficulties that Bank of America in particular and credit card companies in general are facing is the continuing economic recession and the increasing unemployment rate of the United States. These conditions have contributed greatly to the losses that Bank of America is seeing. Bank of America is the second largest credit lender in the U.S. and their losses have grown to $1.04 billion during the third quarter of this year from the $167 million loss the company saw during the same period last year. This is according to executives in the company. They also said that a peak from consumer defaults will not come until the economy gets better.
FBR Capital Markets Corp. analyst Paul Miller said, “A lot of people are having trouble making money in credit cards, and that is going to put a lot of pressure on the banks”.
For September, Bank of America’s annualized write offs rate was 14.25 % and payments due for at least 30 days was at 7.53%. These figures were the highest among the six credit card issuers that reported securitized loan data recently. Bank of America, however, announced that delinquencies for all their card loans dropped from the second period for the entire quarter.
Chief Financial Office Joe Price said, “We continue to be cautiously optimistic that delinquency trends signal a stabilization in losses”.
