Despite significant increases in credit card interest rates and fees during 2009, Bank of America reported today that credit cards continue to be a significant source of losses for the bank. During the bank’s fourth quarter, its card services department posted a loss of $1 billion dollars as credit card write-offs remained elevated. Of the largest six credit card issuers in the country, Bank of America currently has the highest write-off percentage.
According to a statement released by new CEO Brian Moynihan, “Economic conditions remain fragile and we expect high unemployment levels to continue, creating an ongoing drag on consumer spending and growth.” Despite this bleak assessment, Moynihan did note that Bank of America is, “encouraged by signs the economy is improving, as we have seen in the stabilization of our credit costs, particularly in the consumer business.”
Bank of America will likley need the economy to improve substantially for a turnaround in its credit card business to occur. In December, Bank of America reported a 13.53% charge off rate that is more than 40% higher than charge-off rates at Chase (7.11%), American Express (7.5%) and Discover (8.68%).
Credit card profits will likely be many quarters away as a new round of credit card laws is slated to take effect on February 22nd. Under these new laws, banks will be restricted from raising rates on consumers unless they are delinquent for 60 days, a factor that will limit all bank’s from repricing risk in their portfolios.
For complete details on Bank of America’s credit card woes, please refer to Bank of America’s fourth quarter earnings press release: http://investor.bankofamerica.com/phoenix.zhtml?c=71595&p=irol-irhome
-Jeffrey Weber
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