More credit card writedowns are coming

Of course you know I think credit cards are going to produce a tsunami of writedowns, right? Things are looking more and more like that tsunami is right around the corner:

Credit card writedowns soared to record levels in February, representing an all-time high in the 20-year history of the Moody’s Credit Card Index, as job losses mounted, the rating agency said Wednesday.

Credit card charge-offs, the writedown of uncollectable debt, advanced decisively to 8.82% in February, marking the sixth consecutive month of increases. The level, is more than 300 basis points higher than a year ago.

Sharp increases were experienced across several large issuers and have closely followed the surges in unemployment occurring over recent months, the rating agency said.

“We expect that the charge-off index will threaten double digits by the end of the year, in light of our expectation that the economy will worsen throughout the remainder of the year,” Moody’s said.

It predicts the charge-off rate index will peak at about 10.5% in the first half of 2010, assuming a coincident unemployment rate peak at 10%.

Certainly, I have said the Geithner plan, increasingly dubious as more details emerge, COULD actually work at restoring banks to health. But, if we do get the writedowns I anticipate, the banks will be right back where they started and Plan B will be necessary.

Credit card writedowns hit record high: Moody’s – National Post

  1. Wag the Dog says

    I first got wind of this big problem last year when I saw the two documentaries: Maxed Out and In Debt We Trust. Both focussed on the consumer POV but little did I know that was but the tip of the iceberg. Too late to alter course now.

    One wonders how much of this credit card debt has been sliced and diced into CDO-like derivatives, and how much has already been written-off as part of the toxic debt due to the loss of faith in all AAA rated mortgage backed CDOs tainting that entire class of derivative.

  2. Edward Harrison says

    My understanding is that banks have not written down a lot of the credit card debt. And even had they written down their CDO or CDO-squared paper, it would be mostly to reflect the changes in residential housing. But, since mark-to-market rules have been changed, it really doesn’t matter, does it?

    Now, banks won’t have to write down their paper at all. Problem solved, right?

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