Why Credit-Card Firms Are Sweet on You Again

Posted by administrator | 31/08/12 | Tagged Credit Card Debt

Why Credit-Card Firms Are Sweet on You Again
News from Businessweek:

Banks are returning to a practice they abandoned after the financial crisis: taking Americans’ credit-card debt, slicing and dicing it, and selling it off as bonds.

Believe it or not, that’s a good thing.

So far this year, banks and other companies that issue credit cards have sold $ 21 billion in bonds backed by those accounts’ debt, Bloomberg News reported on Aug. 29—up from $ 4.8 billion in the same period the year prior. Broadly, it’s a bet that consumers have their finances in order and will continue to be able to pay their monthly bills on time.

Bonds thrive when there’s predictability, and the credit-card business has become more stable since the crisis. The number of accounts 30 days past due peaked in March 2009 and again in November 2009, and has been declining ever since. Spenders are reining in their charging habits. Card issuers have cut off their least creditworthy customers, and reforms such as the CARD Act have forced them to be more careful about the riskiness of new customers. While all of this has put a crimp in credit-card companies’ growth, it has made for fat, steady revenue streams. In 2012, that’s not a bad position to be in.

“You may have to go back to the 1980s to see credit losses and delinquencies as low as they are right now,” says Bob Napoli, an analyst with William Blair. “It’s a sign that consume…………… continues on Businessweek

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Related News:

Resurgence of credit card bond sales
News from gulfnews.com:

New York: Lenders from JPMorgan Chase & Co to General Electric Co’s finance unit are leading a resurgence of bond sales tied to credit card payments as relative funding costs drop to the lowest in five years.

Card issuers have sold $ 21 billion (Dh97.2 billion) of the bonds this year through August, the most in two years and up from $ 4.8 billion during the same period in 2011, according to data compiled by Bloomberg. JPMorgan, the largest US bank by assets, has offered $ 5.35 billion of the debt in 2012, triple the amount the New York-based lender sold in all of 2011, the data show.

Lenders are taking advantage of demand from investors betting on US assets as a haven from Europe’s fiscal crisis, speculating the economy is growing enough to keep consumers current on their bills even with unemployment above eight per cent for a 42nd month. Yields on top-ranked, five-year credit-card securities have narrowed to 18 basis points more than the one- month London interbank offered rate, the tightest level since 10 basis points in August 2007, Wells Fargo & Co data show.

“The revival is a rather opportunistic play on the part of card issuers able to refinance and, in some cases, extend the maturity of existing debt,” said Christ…………… continues on gulfnews.com

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