Credit Card bond sales at ZERO for first time since 1993

[annarborgator]

Yea, about that second round of stimulus checks...better make them about 5 grand a piece.

Nov. 5 (Bloomberg) -- Credit card companies were shut out of the market for bonds backed by customer payments in October for the first time in more than 15 years, as investors shunned the debt amid the global credit freeze.

A weakening job market and a looming recession are making it harder for consumers to make monthly payments, eroding confidence among investors about the safety of credit-card-backed bonds. It's the first month since April 1993 that there have been no sales, according to Wachovia Corp. data. Issuers sold $17.1 billion of the debt in October 2007, the data show.

``Nobody is eager to put money to work given the uncertainty in the market,'' said James Grady, a managing director at Deutsche Bank AG's asset management unit. ``When you think it can't get worse, it continues to get worse. There is not a demand'' for these bonds.

Top-rated credit card-backed securities maturing in three years traded at a gap, or spread, of 475 basis points over the London interbank offered rate, or Libor, during the week ended Oct. 30, JPMorgan Chase & Co. data show, 25 basis points higher than the previous week. The debt was trading at 50 basis points more than Libor in January.

The higher cost to sell the bonds makes it more expensive for banks and credit card companies to fund loans to customers. New York-based American Express Co. paid 160 basis points more than Libor at a Sept. 11 sale of the securities compared with 30 basis points over the benchmark at a similar sale in October 2007, Bloomberg data show.

Job Losses

One-third of employers in October planned to trim payrolls in the next six months, while 17 percent projected an increase in hiring, the National Association for Business Economics said on Nov. 3, the biggest disparity since the economy emerged from the last official recession in 2002.

U.S. credit-card lenders may report record high customer defaults in 2009, Fitch Rating said in a Nov. 3 statement.

Consumer confidence fell in October by the most on record, according to the Reuters/University of Michigan final index, signaling a further pull back in spending.

Consumer spending, which comprises about 70 percent of the U.S. economy, dropped at a 3.1 percent annual pace in the third quarter, the first decline since 1991 and the biggest since 1980, the Commerce Department said last week.

The slowdown caused the economy to contract last quarter at the fastest pace since the 2001 recession. U.S. retail sales may have fallen for the first time in seven months in October, the International Council of Shopping Centers said yesterday.

Debt Sales

Sales of credit card asset-backed debt are down 29 percent to $60.3 billion from a year ago, according to JPMorgan.

American Express used the Federal Reserve's commercial facility program for the first time on Oct. 29 as available funding shrank.

The lender is slashing 10 percent of its work force as part of a plan to cut costs as cardholders failed to repay loans at almost twice the rate of a year earlier. The job cuts ``will help us to manage through one of the most challenging economic environments we've seen in many decades,'' Chief Executive Officer Kenneth Chenault said in an Oct. 30 statement.

American Express was forced to set aside $1.4 billion for loan losses, according to an Oct. 30 statement.

American Express has lost 47 percent of its market value this year on concern that higher funding costs and rising defaults will hurt profit. The shares fell $1.99, or 6.7 percent, to $27.83 today in New York Stock Exchange composite trading.

Bank of America Corp., JPMorgan and Citigroup Inc. also rely on the asset-backed market to fund their credit card portfolios, but the banks' large deposit bases give the firms another option to fund originations, Deutsche Bank's Grady said.

``True finance companies are in a less advantageous position,'' Grady said. ``Their funding costs will be considerably higher.''

http://www.bloomberg.com/apps/news?pid=20601109&sid=awS5vZQvmwd4&refer=home

[radbag]

and AXP's main business is to give credit out...swipe your card and pay later...guess what? no one's paying...so you effectively shut them down and you report that to the credit agencies...guess what? the credit agencies are aware...so you shuffle that account off as being a bad account...receivables unrecoverable...chalk that account up in the column titled 'write-offs'...guess what? the list of write-offs are doubling and tripling by the month....well now - it's a good thing that we've diversified and that our main business is hedged by a profitable asset management division (no insurance company anymore...we can't rely on the incoming premiums we're paid to help offset our losses at the credit division...we sold st paul to citigroup)....guess what? the asset management divisions is down 40% largely due to the global financial crisis we are now operating in...hmmm - what about the rainy day fund? you know...the slush fund we had set up when times were booming and business was accelerating...can we use some of that to offset our losses on unrecoverable receivables...guess what? we did that shit already...what now? stop lending...that's what...but that's our main business...no - our main business is to make money and maintain a stock price...that's what our main business is...ok - we will stop lending...what about money we will need to fund our day-to-day operations? where do we get that? talk to the fed....guess what? we did that shit already...where else do we go?

[chenault] AXP is announcing an organizational re-engineering in which we will slash 10% of our workforce, about 4K jobs, and we will freeze job hirings, we will cut salaries and freeze executive pay raises [/chenault]



my buddy steve runs a hangar out of stewart airport for AXP...all the companies executives use the hangar as a travel point in and out of the NYC area...they've got about 60 employees when you count all the clerks, maintenance, pilots, stewardesses, and administration. he told me saturday that he's gotta cut 12 people. there's 5-6 that are no brainers (either new hires or positions deemed non-essential)...the other 6 or 7 are people he's had at his house for dinner...i've golfed with some of these people...it's unfortunate but it is what it is.