Monday, October 6, 2008

Consumer Credit Quality Continues To Deteriorate at Bank of America


Bank of America's (BAC: NYSE) stock, which shed 6.6% during regular market hours, was recently shedding another 7% after the company reported weak third-quarter earnings. In addition to the company announcing a dividend cut, it also said that consumers are experiencing higher levels of financial stress. You think?

From the company's press release: Bank of America Announces Third Quarter Earnings and Capital Raising Initiatives

Increased loss and delinquency trends first experienced in the home equity and homebuilder portfolios have now spread into the first mortgage, unsecured consumer lending and credit card portfolios. Deterioration has been more pronounced in California and Florida, which have been hit harder by home price depreciation and rising unemployment than in other markets. Commercial losses in sectors other than real estate and small business also increased, but remain below normalized ranges.

The company also said that it is raising capital to weather this most uncertain storm. Bank of America's CEO, Kenneth Lewis, said that this is one of the toughest environments he has seen during his career.

These are the most difficult times for financial institutions that I have experienced in my 39 years in banking," said Kenneth D. Lewis, chairman and chief executive officer. "We believe it is prudent to raise capital to very substantial levels in this uncertain environment. Both economic and financial market conditions have changed significantly in the last two months. We were willing to operate at capital levels over the short-term that were good, but not at our targeted levels, given projections two months ago. We now believe it is important to be at or near our 8 percent Tier 1 capital ratio target given the recessionary conditions and outlook for still weaker economic performance which we expect to drive higher credit losses and depress earnings. We believe that achieving higher capital levels today will position our company to provide credit to those consumers and businesses that are attracted to our strength and stability.

The penultimate sentence in the second quote makes it very clear. Things are going to get worse before they get better. Consumers who are not in tip-top shape should continue to expect more credit-limit decreases and account closures.

Fasten your seat belts.

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26 comments:

Anonymous said...

Makes me glad I found credit boards and got in with some great credit union as backup to my big bankcards.

Nikky

Credit Matters said...

Nikky, timing is everything, pal.

I found CB in early 2006. I took the education I got there and milked for all it was worth.

People should absolutely be looking for a nice credit union to do biz with. Lending has not shut down there. CUs are all too eager to lend money. I just got preapproved at Pentagon for a $50,000 auto loan and a host of other products. I do not need any of those loans right now, but it's nice to see that Penfed is actively lending to customers with good credit profiles.

Hkbushido said...

sucks for people like me post BK that are trying to rebuild. I have a target CC and a penfed CC and that's all. My plan did include chase 6 month from now, but I could careless about the rest of them. hopefully in 6 month CUs will still be in a giving mood.

Credit Matters said...

Hk, continue to work on your good credit habits. Tough market right now. Chase is not exactly BK friendly. How long ago for your BK?

Anonymous said...

Nice credit matters. I got in with Penfed and Alliant, 2 places I never heard of before creditboards. I had a similar experience with alliant that you had with penfed. with penfed I had to fax them my incometax returns but am happy with my limit after that. However, with alliant, I did not even apply for a card. I applied for savings and they said, well, as long as we pulled your credit and it was so good, how about a platinum rewards visa, and while we are at it, can we offer you a $35k auto loan as well. I turned down the car loan because I own my car and am not in the market but said, yes and thanks the the visa. Having the penfed and alliant I think are great backups in this uncertain economy. And pssst...it was your blog that helped me decide to get penfed. After I got mine, I talked my husband into applying for one as well. Combined, we got back $95 in cash rewards from pentagon in just one month of spending that we would have done anyway. And paid in full of course :)

Nikky

Hkbushido said...

3.5yrs post bk once I reach the time I want to apply. from the credit pulls dB I've seen many denials due to BK but does same denials turn into 3k-5k approvals after recon. They are not a priority for me but I would like to get the freedom card. Mean while my wamu check/sav account will age with them for a year.

My next app will be a CU like JFCU or alliant strictly for the high limit approval. There after my CC limits will look like 20k,20k (jfcu or alliant), 5k target. That's when I plan to apply for 2-4 more cards, but that's 1 year down the road.

Credit Matters said...

Nikky, so glad to hear that you have added CUs to your card arsenal. The CUs are doing pretty dang well right now (though there have been some low-profile failures; talking minuscule deposits).

And very nice that my blog helped you with the Pentagon decision. I think I will make that a related article right now. Others may come after this and wonder about Penfed and credit unions in general.

That's sweet about the nearly $100 cash back. I use my Penfed card religiously. But I just added the Chase Freedom to the mix, so I will be using that card at grocery stores (for 3% back).

Credit Matters said...

Hk, I think that would be cutting it close. Chase seems to hate BKs that are under 5 years old. But let me know how that goes when you actually do it. Curious to see if they have changed their stance.

You have some solid limits, though. That should help in whatever approvals you do get.

Anonymous said...

Yes, chase freedom is great at the grocery store. I use it for drugstores, grocery etc. Except, Discover is fantastic for their specials. Currently its 5% cashback at groceries and restaurants through December 31. So I am planning on using discover at the grocery until 12/31. I have had discover before most people heard of discover and most did not take it. In the old days, it was one of the first cash back cards and then it wwas like 1/4 then 1/2, tiered to spending. Also, discover shopping links are great for stuff you would buy anyway. I tend to shop for my kids clothes online and they have one of the best online shopping networks for cashback. I saw on creditboards you were thinking of discover. Great customer service. I'm done with credit cards but feel the credit unions were a great rounding out. Not to mention alliants great savings rates.

Nikky

Credit Matters said...

Nikky, Discover is next on my hit list.

Always looking for excellent customer service.

I have a car purchase coming up. But after that, Discover will be next.

Anonymous said...

Plus they have fantastic designs :)

Nikky

Hkbushido said...

From my research the following are not BK friendly.

1. Citibank
2. Disover
3. Amex
4. National City
6. Bank of America
5. Chase (recon works with good score/clean report)

And sadly enough after this credit crunch these guys are the main players that are left anyways. So it's not like I had any choice even before this whole credit crunch, not to mention how recent by BK is.So it seems like the only place people who are rebuilding can turn to is CU's anyways. This is besides the sub-prime AF based cards like orchard, hooters, first national etc...

Credit Matters said...

Hk, I think you'll be fine. Those current cards should serve you well. And this bank consolidation is absolutely giving customers fewer choices; just another reason to have a CU.

It's a marathon, Hk. It's a grind. You'll be fine.

Credit Matters said...

Nikky, yes. I have seen some of those designs. Woot woot.

I just noticed today that Wamu is now offering multiple designs on the platinum card. Too bad it's Wamu (now Chamu).

Hkbushido said...

Chamu? lol do they have a great whale logo card?

Credit Matters said...

They do not. But with the Chase/Wamu tie up, I think Chase should roll out a new card called the Chamu Visa. Use Sea World as a partner.

eldarwen999 said...

I am a little nervous with the current credit enviornment. I just got my Bank Of America a couple of months ago. My whole situation is that I opened 6 of my seven credit cards in the past year. I don't think that I can get a Penfed credit card right now because of all of my inquires. All of my cards are by prime banks.

Credit Matters said...

Eldar, I wouldn't be nervous. Simply use your cards responsibly. You have diversified. Even if one of your limit is severely cut, you'll have a backup.

My greatest piece of advice is to pay your bills in full. Carry no balances from month to month.

You'll be fine.

eldarwen999 said...

I am working on paying down my balance with Discover and Chase, the others can be handled easily (3 are paid off). I have already had my Amex cut, but not really worried right now. It's hard living with a budget right now.

Credit Matters said...

Eldar, sounds like you have a plan. Do what you can.

Good luck on everything.

eldarwen999 said...

I have a plan to be paid off by June of next year. I hope the credit climate looks better by then.

Credit Matters said...

No idea what the credit climate will look like in nine months, but by being credit-card debt free, you will maximize your chances of enjoying success.

Anonymous said...

Chamu if you were a chase customer originally, WaCHa if you were a wamu customer first and Chawawacha if you already had both :)

Nikky

Credit Matters said...

LOL. Thanks, Nikky.

Anonymous said...

It seems it would not be wise to ask CLI from BOA right now.

GlobCredit.com said...

Unless you have excellent credit. In which case, I say go for it. I still think that high-quality borrowers shouldn't hold back.

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