December 22, 2008
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News: B-of-A Soundings.
With the entire credit card industry teetering, how is Bank of America (BoA )standing up to it? They are reputedly the largest credit card bank so they, obviously, have the most vesting in our struggling population. A large portion of those card holders have already withdrawn heavily from further use of their cards. BoA carries the largest credit card portfolio with a staggering 70 million open accounts.
Large entities like BoA realize that being big doesn't mean one has to be clumsy. In spite of their aggressiveness, they pick and choose areas of restraint (It's largely a North Carolina trait). Right now they're trimming accounts down. Unused accounts are going first. New accounts require higher qualifications. They are not opting to panic and slam their existing credit card clients with every penalty they can for a quick bottom line. They have greater stability than the other large credit card lenders through their financial diversification and don't need to panic.
Still, they must tend their garden. Their credit losses from the third quarter reflected a sharp escalation from 4.7 percent to 6.4 percent since last year's same quarter. Income from credit cards fell from $3.6 billion to $3.12 billion, when comparing those same quarters. The biggest losses came from Florida and California. With unemployment on such a steep rise, the ominous truth is that payment defaults follow this unemployment rise almost directly.
As such, BoA have found it necessary to adjust interest rates more closely to added risk. This was not an across-the-board hike, however. It was based on calculated risks from updated credit reviews. They have submitted to the government that the new regulations may cause the credit card industry to adjust rates again to accommodate the new restrictions that are scheduled to go into effect in 2010. Without the ability to adjust interest rates as risk rises, the industry will have to raise initial rates to hedge for that.