So, not surprisingly, over the last two days we have seen “better than expected” numbers from both JP Morgan and Citigroup. This does not surprise me at all, primarily because of the revision of the mark-to-market accounting rules, allowing these guys “freedom” in how they value their toxic assets that could be applied to these first quarter announcements. What I did notice however, with both banks (including Citigroup this morning), is that they are both losing huge money from their credit card business. This is something we have been discussing and predicting here at Investor Rebellion for months now, and it is starting to come to light.

This is an article from CNBC by Patricia Chadwick, who has her own financial consulting firm. She comes to the same conclusion, as she says a closer look at JP Morgan’s numbers from yesterday reveals that their credit card write-offs soared in the first quarter. Citigroup basically said the same thing in their announcement this morning. JP Morgan’s management also yesterday admitted that they expect further significant credit-card write-offs and huge losses in their credit card business. Chadwick feels this is a huge looming crisis not only for these banks, but for our overall economy. I couldn’t agree more, and Meredith Whitney also agrees 110%.

I completely agree with Chadwick that the credit card business has been disastrously managed over the last 15 years, as it has become just a ridiculous business model of extending open lines of credit, on unsecured debt, to uncreditworthy borrowers. The worse your credit history, the more credit cards you got in the mail, every day. Now, after 15 years of ludicrous mismanagement, banks are scrambling to fix this business as fast as they possibly can. Banks are FINALLY waking up and realizing that what they have been doing with regards to credit cards over the last 15 years was not smart, and was not profitable for their bank. They are now cutting people’s credit limits, freezing cards alltogether, and increasing rates on credit cards at a time of record low mortgage rates. As Elizabeth Warren said in an earlier post here, credit card companies have put loan sharks out of business! What they are doing with their rates and fees are things that loan sharks could only dream of doing.

via http://investorrebellion.com/?p=584

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