Tuesday, December 02, 2008
One good shitpile deserves another.
And as many have been predicting the mortgage shitpile will soon be joined by the credit card shitpile, which was built to record size by people trying to pay their part of the mortgage shitpile.
Accounting changes in the US next year mean all credit card debt will have to be brought onto balance sheets. That spells trouble for Bank of America, Citigroup and JPMorgan, which hold more than half of their credit card debt outside their profit and loss accounts, according to Oppenheimer & Co.When you are bailing as fast as you can and the water keeps on rising, where do you go?
"It will require the banks to use up a meaningful portion of their Tarp capital to build reserves for credit card losses in 2009," says Whitney, who believes the three major banks might need to devote between 20% and 42% of their newly raised capital to credit card debts.
It raises the question whether the $178bn in new capital raised by the six big banks so far is enough. Of that, $110bn came from the Tarp and it was supposed to encourage banks to resume lending to consumers, but that is possible only if the consequences of the past decade's loan spree have been addressed in full. "We believe much of this capital will be diverted to plug holes on the balance sheet," says Whitney.
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