U.S. Credit Card Defaults Soar
Credit card defaults continue to soar in the U.S., with write-offs jumping to a record high of 11.49% in August, from 10.52% in July. The default rate was greatest in loans which are 30-59 days overdue, surging to 1.65% from 1.41%.
Increases in these “early-stage” delinquencies usually signals concern for greater losses in the future. As the unemployment rate is expected to continue trending up, the near term doesn’t look very positive for credit card issuers, as the rate of default tends to follow suit.
VISA Releases Stellar Results
VISA Inc. released stellar results for its third quarter, reporting that net income leaped 73% to US$729M, up from US$422M a year ago. Due to the nature of Visa’s business (it makes its riches off transaction fees rather than lending), the company remained relatively isolated from an unattractive, default-ridden credit market.
Visa, as the world’s largest electronic payments network, also benefited from a consumer switch-away from cash and cheques towards debt, credit and charge cards. Visa’s share price jumped 0.64% yesterday to close at US$67.21.
Advanta Suspends Nearly 1 Million Client Accounts
It seems like the rough waters are intensifying for Advanta Corp, the credit card company that was forced to suspend nearly a million client accounts after defaults rose to 20% in the first quarter of 2009. The lender said today that defaults rose by over 100% to 56.95% in June from May.
Just over a week ago, it announced that it would be laying off half of its workforce across all departments, after posting three-straight quarterly losses. Advanta is set to release its second quarter results this week.