December 07, 2009
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News: BofA Hit Hardest With CC Defaults
Bank of America, the nation's second largest credit card company, has been hit significantly harder with card defaults compared to other major lenders. The bank expects to see defaults continue to rise and hopefully peak during this fourth quarter. The bank wrote off over $14 billion of credit card debt during 2009 approximately 76 percent more than same time 2008. Since card defaults typically correlate with the unemployment rate and as the unemployment is expected to continue to climb over the new few months, Bank of America will most likely experienced continued rise in credit card defaults during 2010. The unemployment rate rose to 1.2 percent for October and is expected to rise to 11 percent by middle of 2010.
The banks Global credit card network played the biggest role in the bank's profits in two quarters over the past year. The division contributed to 23 percent of net revenue and 36 percent of income. According to Ric Struthers, President of the bank's Global card division, analysts are optimistic in predicting that credit card defaults will peak during fourth quarter. He believes this is a “realistic view.” Such an improvement for Bank of American would be a very welcome relief. Goldman Sachs Group, Inc. also displayed an optimistic view when the company lowered its predictions for the nation's overall card losses from 23 to 28 percent to 20 to 23 percent.
Bank of America reported a decrease in credit card defaults for October to 13.22 percent from 14.25 the previous month following a yearly high of 14.54 percent in August. The bank has reported the highest write off rate among the top six card companies in the nation. As a result the giant card company took drastic measure to reduce risks as they shut down accounts, slashed credit limits, and implemented stiffer penalties. As cardholders continue to reduce spending and aggressively pay down debt, the bank expects that defaults will not decline as quickly as hoped for the next quarter because lending will actually drop quicker than write-offs.