Monday, May 11, 2009

The Amex Paradox as US Credit Card Issuers Crash Land

In a recent article in the New York Times, the major US credit card issuers have put on their safety belts and crash helmets, as they prepare for a major crash landing with their credit card portfolios. Credit card losses are soaring to unprecedented levels as unemployment rises, and cardholders struggle to make ends meet.

From credit card write offs in the region of 5,5% in 2008, write-offs have shot up to 8,5% in Q1 of this year, well above the previous credit card loss peak of 7,9% experienced after the technology bubble burst in 2001.

Banks are doing their best to limit losses by tightening application approval criteria, cancelling unused card accounts, and reducing available credit limits. At the current rate, credit lines will probably be reduced by a staggering $2,7 trillion by next year, or - to put it in perspective - cut in half compared to the available card credits only two years ago.

Credit card losses have historically correlated quite well with unemployment rates, which indicate that banks are heading for more trouble as the US unemloyment rate threatens to break the 10% barrier. Even more so when Citigroup recently reported that its 10,2% charge-off rate in Q1 for the first time had broken the "historic correlation with unemployment".

American Express is one of the banks trying to limit its exposure, as stress tests of the portfolio indicate that it may face losses of up to 20% of card balances over the next year or two.

So why are they sending out direct mail to recruit new cardholders in France for its Optima credit card? A paradox, to say the least.

Wednesday, May 6, 2009

New, Innovative News Bulletin on the Nordic Card Market

When information is abundant, and time is scarce, news bulletins that take a fresh and innovative approach to providing insight are most welcome. MACAW research has recently launch a Card Bulletin focused on the Nordic card markets, and the first two issues are promising.

The bi-weekly newsletter aims at giving card professionals in the Nordic region, and others interested in that part of the world, "ideas, inspiration and timely insights" on the industry.

Judge for yourself. There are a couple of free bulletins available on MACAW's web site here. Most interesting.