Pandora Opens The Credit Card Receivables Box (BAC, C, AXP)

Everyone has been looking for the next shoe to drop in the financial sector where it ties in with the consumer.  Everyone thought this would be credit cards now that primary mortgages, secondary mortgages, autos, personal loans, and more have been getting uglier by the month.  That appears to have come full circle now.

According to Bloomberg, credit card companies have been shut out of themarket for selling credit card receivables for the first time infifteen years.  When Goldman Sachs and GE were having to pay nearlydouble-digit interest rates and when investment grade corporations were havingto pay spreads of 500 and 600 basis points (or more) to raise debt, youcan imagine that borrowers weren’t buying credit card debt receivables.  This article says there were no sales for the month.  It further goes on to say that spreads last month went to475 basis points over LIBOR, up from 50 basis points at the start ofthis year.

This is a topic we have been following for some time.  On the consumer side, more consumers have been notified that theircredit limits are being reduced on their cards or that their cards arebeing canceled due to lack of use.  The real issue here is banks andlenders taking drastic steps to cut their counterparty risks with JoePublic personally and with Joe The Plumber’s business.

Department stores are expected to show dismal sales tomorrow with manycases of double-digit same store sales drops.  Besides a tight-fistedconsumer, these companies are also no longer issuing credit cards toany person who comes into their store wanting to buy a shirt.

We recently covered this on Citi’s (NYSE: C) losses on cards.  Even a month ago, we showed in Bank of America (NYSE: BAC) earningsthat the delinquencies and charge-offs were rising sharply to recessionlevels.  Also last month we saw American Express (NYSE: AXP) trying to fend off market concerns by issuing lower capital needs…. right before it said it would lay off 7,000 workers.

Jon C. Ogg
November 5, 2008