August 25, 2009
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News: Bank of America Struggles With Debt
While the top credit card companies in the nation have taken advantage of the Federal program the Term Asset-Backed Securities Loan Facility (TALF) to sell card securities, Bank of America has not qualified to sell its card backed debt. According to a Bloomberg report, Bank of America has the highest credit card default rate in the nation. Together JPMorgan Chase & Co., Citigroup, Inc., and American Express have sold credit card securities totaling more than $21 billion through the TALF program. Bank of America's card portfolio consists of approximately 68% of accounts with a FICO score above the 660 mark. Having a rate below 70% labels the securities as subprime. Such FICO scores would require additional safeguards from default.
The Charlotte, North Carolina based Bank of America had the highest credit card defaults in the industry in July at 13.82% which contributed to its inability to sell any of its securities through TALF. While their defaults continue to rise, their competitors have realized modest declines. The national average is beginning a slight trend downward as credit card defaults during July fell to 10.5%. Advanta Corp, the small business card issuer who recently shut down all its business card accounts to future use, is the only major lender that has a higher default rate than Bank of America. They currently have reported a default rate of more that 20%.
Credit card bond sales have fallen dramatically since last year and in fact none existed until the Federal TALF program became available in March. The TALF program has been extended for three more months in the wake of the credit crunch. According to Morgan Stanley, of the top six lenders, JPMorgan, Citigroup, Capital One, Discover Financial, and American Express have a total of over $375.1 billion in outstanding card debt while Bank of America alone is carrying nearly $93.9 billion. As lenders prepare for new mandated U.S. Financial Accounting Standards that take effect in 2010, it is speculated they may issue fewer asset backed debt.