So says Meredith Whitney, a banking analyst over at Oppenheimer & Co. During the next 18 months, Whitney expects the credit-card industry to rein in some $2 trillion in credit lines. The move, says Whitney in a research note, couldn't come at a worse time. She called the pullback in credit both "dangerous" and "unprecedented."
From Reuters:"In a country that offers hundreds of cereal and soda pop choices, the banking industry has become one that offers very few choices," Whitney wrote in a note dated November 30.
She also said credit lines to consumers through home equity and credit cards had been cut back from the second-quarter levels.
"Pulling credit when job losses are increasing by over 50 percent year-over-year in most key states is a dangerous and unprecedented combination, in our view," the analyst said.
Read the rest of the story here (link).
Monday, December 1, 2008
Credit Card Industry May Cut $2 trillion of Credit Lines
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13 comments:
Unreal, CM. Unreal.
They just don't get it. I am all for making CL in line with what a person could afford to repay. Even though CL does not equal debt, for folks who have shaky credit it should be treated as such. But pulling back that much is going to be disastrous.
Not only for the consumer but for the economy. I think that's what Whitney was getting at when she said it would be dangerous. If customers are being reined in, they'll drop their consumption as well.
Consumer spending represents 2/3 of GDP. This could get ugly.
Citigroup's favorite analyst, aka "The Diva of Doom"...
"Whitney was an obscure analyst of financial firms for Oppenheimer Securities who, on October 31, 2007, ceased to be obscure. On that day, she predicted that Citigroup had so mismanaged its affairs that it would need to slash its dividend or go bust. It’s never entirely clear on any given day what causes what in the stock market, but it was pretty obvious that on October 31, Meredith Whitney caused the market in financial stocks to crash. By the end of the trading day, a woman whom basically no one had ever heard of had shaved $369 billion off the value of financial firms in the market. Four days later, Citigroup’s C.E.O., Chuck Prince, resigned. In January, Citigroup slashed its dividend.
From that moment, Whitney became E.F. Hutton: When she spoke, people listened. Her message was clear. If you want to know what these Wall Street firms are really worth, take a hard look at the crappy assets they bought with huge sums of borrowed money, and imagine what they’d fetch in a fire sale. The vast assemblages of highly paid people inside the firms were essentially worth nothing. For better than a year now, Whitney has responded to the claims by bankers and brokers that they had put their problems behind them with this write-down or that capital raise with a claim of her own: You’re wrong. You’re still not facing up to how badly you have mismanaged your business".
http://www.island.lk/2008/11/30/business3.html
Thanks, Scott. The Diva of Doom. I like that.
Not exactly the nickname I would want...eek
But the lady has a point.
I would think she actually likes it, Lion. Believe me, to just get a nickname is a good thing. She'll take it.
Oh I am sure she likes it...not sure I would.
if a 600 BILLION dollar hit to the US economy kills stocks worldwide, do you wonder what will happen in the event of a 2 TRILLION dollar hit?
the government actually ought to short circuit the banking system and just credit all tax payers accounts directly. it would help resolve the consumer market a whole lot faster and more honestly.
Pensive, it will be ugly if Whitney is even close to being correct.
Drew, one of my readers, has suggested what you're talking about. Instead of stimulating the banking system, just stimulate the consumer. It's about $24,000 per person right now.
So, if this is imminent, would it be wise to get another card or two and diversify even more before the big crunch comes?
Brian, only you can answer that question. I have always been a big proponent of diversification. I think it's wise to have credit cards from more than a few creditors. Indeed, I have cards from 12 different companies: Nordstrom, BOA, Citibank, HSBC (Saks), Chase, BMW, Pentagon, NASA, American Express, USAA, Washington Mutual (soon to be a Chase credit card), and one other that I can't think of right now.
But it's not easy to get credit these days. Still, if I had stellar credit, and not a lot of diversity, I'd likely (regardless of the climate) grab a few more options.
But that's me, Brian. Only you can decide. New accounts ding FICO scores. Inquiries ding FICO scores. You'll just have to see if the loss of FICO points makes up for the new options you'll have.
Since Joe's not around, let me put in a plug for credit union credit cards :-)
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