Creditnet News Story
Banks Experience a Deluge of Defaults
Tuesday, May 26, 2009
By Thomas Astery
With unemployment rates raising steadily, banks are seeing a similar increase in late payments and defaults. Bad debts will reach records highs. Read credit news at Creditnet.com.
Those of you who are expecting that the country’s economic situation is starting to get better will be in for a big disappointment. At the heels of the new credit card reform bill is the deluge of credit card defaults as more and more jobs were lost last month. Bank of America, Wells Fargo, and American Express all announced their big losses due to bad debt. This could be an indication that that the economy is not going to get better any time soon.
The default rates of major U.S. banks are disappointing. The default rate of American Express went up 10%, Bank of America rose to almost 10.5%, while Citi credit card defaults reached 10.2%.
In addition, stock shares of the big banks have been going south. Total shares of major banks lost 4 points in New York. Bank of America is the biggest loser with a 5.7% drop at the close of the market. Wells Fargo went down by 3.2% while Citigroup and American Express each went down by 2%.
Mounting bad debts is the main reason banks use to justify such controversial practices as removing consumer bonus rewards, increasing interest rates, lowering customers’ credit limit, and closing card accounts. Just a couple of weeks ago, Advanta Corp, a card company specializing on small businesses, announced that they will close all accounts this June. However, some critics claim these bank practices are aimed at getting more profits while awaiting the full implementation of the credit card bill.
Analysts forecast that if the credit card industry losses go beyond 10% by the end of the year, bad debts could possibly exceed the $70 billion we are now seeing. That might not even be the worst we’ll see, especially since late payments and job losses continue to climb steadily.
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