IPM: Credit Card Issuers Face Bigger Losses Than Expected

Hat Tip: Mish's Global Economic Trend Analysis

We at IPM think this is a positive development for our stored value pre-paid card market. As the credit card market continues to drop, the demand will continue to increase for stored value cards as a way to conduct electronic monetary transactions.

The stored value pre-paid will continue to expand in the unbanked and banked markets.

Article from CNNMoney.com follows:

Dow Jones Newswire

June 27, 2008: 10:54 AM EST
By Aparajita Saha-Bubna and Marshall Eckblad

Investors sold on plastic may want to reduce their balances.

Credit card issuers - ranging from standalone companies such as Discover Financial Services (DFS) and American Express Co. (AXP) to those at banks like Washington Mutual Inc. (WM) and Citigroup Inc. (C) - are likely to suffer worse losses in the coming quarters than initially expected.

Hit by the double-whammy of a growing reliance on credit cards by cash- strapped borrowers and a worsening economic downturn, issuers' earnings should be dented by deeper loss reserves and higher defaults.

New credit card data from Fitch Ratings indicate that losses are hovering around or have exceeded five-year averages and issuers have increased their loss expectations or withdrawn guidance in the face of rising unemployment, record- high gas prices and a housing slump that has yet to bottom.

"The deterioration in credit cards is accelerating faster than many had expected," said Christopher Wolfe, an analyst at Fitch and one of the authors of the report published Friday. "The message we are trying to deliver is that things are going to get worse before they get better. Thus far, credit card businesses have been profitable but that could change.