CREDIT CARD STOCKS DOWN SO FAR THIS YEAR
May 26, 2005
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For much of 2004, consumer finance stocks surged, posting a 23 percent gain, but this year, the group has fallen by 11 percent, trailing the Standard & Poor’s 500 by nine percentage points, Barron’s Online reported. Investors fear that a softer housing market, in addition to concerns over high fuel prices and rising short-term interest rates, could precipitate a drastic decline in cardholders’ net worth, limiting their ability to tap home equity to repay debt. But a housing slowdown actually may have the opposite effect, says Kathy Blake Carey, an analyst with Milwaukee-based Mason Street Advisors, a Capital One shareholder. “If the housing market declines and homeowners cannot use their homes for cash, then credit cards may again be their only option,” she points out. In fact, despite easy access to low-interest home-equity loans, “the average customer [still] does not pay their full debt every month,” points out Michael Vinciquerra, an analyst with Raymond James & Associates.
Around 89 million (of a total 105 million) U.S. households carry an average $8,854 total debt across an estimated 12 cards, according to CardWeb.com, a Frederick, Md.–based credit-card data site. Credit-card spending grew by 10 percent last year and will grow by 8 percent this year, estimates Joe Dickerson, an analyst with Atlantic Equities. Meanwhile, a stricter bankruptcy law, which goes into effect in October, could prompt some debtors to file for bankruptcy before it gets tougher for them to wipe out their debts. That could cause a short-term crunch for card companies. But Dickerson notes that large credit-card issuer MBNA attributes roughly 40 percent of its credit-card losses to bankruptcy filings. For Capital One, it’s about 25 percent. A tougher law “will improve loss ratios, and help them offer more competitive pricing” for both new and existing customers, he says.
