Today, American Express said that consumers are increasingly falling behind on payments. This suggests that credit card charge-offs at banks are about to go much higher in the coming quarters.
A story by Bloomberg News reads:
American Express Co., the biggest U.S. credit-card company by purchases and cash advances, said customers are falling further behind on their debt, signaling the economy is worsening.
“Business conditions continue to weaken in the U.S. and so far this month we have seen credit indicators deteriorate beyond our expectations,” Chief Executive Officer Kenneth Chenault said in a statement today announcing the company would receive as much as $1.8 billion in a settlement with competitor MasterCard Inc.
–Bloomberg News, 25 Jun 2008
My take on what’s important to glean from this story is that the real economy is deteriorating in a way that will pose additional threats to banks balance sheets in the form of charge-offs. Five banks control 80% of the market for Visa and MasterCard. They are JPMorgan Chase, Bank of America, Citibank, Capital One, and HSBC.
See: Credit Crisis Timeline for a full list of writedowns and capital raising by institution and a timeline of the credit crunch.