November 18, 2008
-
News: Bank of America Feels Credit Card Crunch.
Another credit card titan is stumbling, now it's Bank of America. Immediately following the demise of Citigroup, BoA is reporting the same kinds of problems, as are many other credit card giants. Speaking for BoA, Chief Executive Kenneth Lewis concurs with the disquieting forecast that conditions are expected to continue to worsen for the credit card industry for a while yet before they turn around.
He projects that this could turn out to be the worst year the credit card industry has ever known. While already floundering in the troubled waters of September's Merrill Lynch & Co Inc takeover, he shared that "fairly significant" job loss is anticipated within this, the largest U.S. bank. Due to the huge recent takeovers, any more significant growth from BoA is not expected for years to come, according to Mr. Lewis. In addition to being the larges US mortgage lender, BoA is also one of the largest credit card lenders. Yet, because of serious revenue declines in that sector, they have had to cut half of their dividend to shareholders. This year they had to report a in third-quarter profit decline of 68 percent.
Although not the best year for them, BoA still managed to raise over $22 billion this year in capital. They also earned a $25 billion loan out of the $700 billion federal bailout funds, for taking on the huge responsibility of two of the worst-off lending failures. BoA's lean posture of operations has led it to steer away from the destructive habits of some of its counterparts by rejecting the use of golden parachutes for top executives who have not performed well. Already over 100,000 jobs have disappeared from the financial market sector. Another 52,000 more (world-wide) from within the largest credit card lender and second-largest bank, Citigroup Inc. are scheduled to end soon.
Debt losses and sagging economies have become a worldwide crisis. Mr. Lewis doesn't expect things to turn around before mid-next year. He holds that the excessively low interest rates and government subsidies were the cause of the mortgage meltdown. Short-term "teaser" rates and disregard for the outcome were a very foolish approach. With that same approach in the credit card industry, how could anyone expect a different result?