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Reply #9: US bank profits feel pinch from strapped consumers [View All]

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UpInArms Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Oct-19-05 07:01 AM
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9. US bank profits feel pinch from strapped consumers

CHICAGO, Oct 18 (Reuters) - This year's surge in consumer bankruptcy filings is taking a predictable bite out of bank profits.

But will the spike in charge-offs at Citigroup Inc. <C.N>, Wells Fargo & Co. <WFC.N> and others be the temporary blip many investors assume? Or could it be a longer-term trend that will weigh on banks and credit-card issuers' earnings into 2006 and beyond?

Analysts aren't sure.

The big uncertainty isn't the new bankruptcy law itself, which is widely expected to reduce the number of consumers who successfully wipe out their debts to credit-card issuers and other creditors.

Instead, the question mark centers on unrelated new rules that require card issuers to be more honest about the cost of credit and to ensure that the minimum payments consumers make each month cover not only finance charges and penalty fees, but some principal as well.

Analysts believe the minimum payment rule in particular, which has received far less publicity than the change in the bankruptcy law, could wind up forcing more cardholders into the courts for protection and keep charge-offs near or at current levels.


"Banks lowered minimum payments because the less you paid off, the more you paid out in interest," Hammer said. "If you do the reverse of that -- raise minimum payments -- it's going to have the opposite effect."

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