December 01, 2009
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News: Banks Gearing Up For More Defaults
Analysts have changed fourth quarter profit forecasts for major credit card companies as lenders reduce the number of loans and credit being extended. While scaling back lending to reserve cash for future loan defaults will reduce credit card companies' risks, it also reduces net interest income. This shift in cash flow will cut into 2010 profits quite possibly pushing stock prices down. A JPMorgan & Chase analyst said that the giant lender's credit position although not stable has some positive qualities. The banks credit card delinquencies of 30 days or more are stabilizing and securitized loan defaults are down. However, mortgage loan foreclosures are expected to continue to grow. Goldman Sachs analysts estimated banks have already written off approximately $1.6 trillion for the current cycle.
Nearly every major credit card company took advantage of the Federal Government bailout program earlier this year. Lenders have a dual dilemma, increase lending while maintaining adequate cash to cover future loan defaults. Planning to pay back taxpayers for the bailout funds is an added financial burden. As home mortgage loan foreclosures are expected to peak, commercial real estate is expected to be the next group of casualties. JPMorgan, the nation's largest credit card company, said that the company's construction, industrial, and some residential loans continue to decline at a slightly faster pace than previously.
Meanwhile, analysts have lowered Bank of America's, the nation's second largest credit card company, forecasts to 80 cents a share down from 90 cents. Well's Fargo, the nation's seventh largest card company was forecasted down slightly to from $1.95 to $1.90 a share. Regions Financial is expected to lose 60 cents a share while Sun Trust is expected to lose $1.05 per share. Fifth Third Bank is now expected to lose 50 cents a share increased from the original 30 cents a share previously. On a positive note, U.S. Bancorp is expected to fare better than previously expected with a forecast increase of 5 cents a share.