Credit card, mortgage losses bleed corporate profits

By Julie Sherrier

Credit card and mortgage losses continue to drain both large and small issuers' earnings, according to recent third-quarter reports.

American Express reports that increased delinquencies and reduced consumer spending drove the company's third-quarter profits down 24 percent. And AmEx Chief Financial Officer Dan Henry says the company expects things to get worse before they get better. The company's credit card business led the decline, with a 59 percent year-over-year decrease in net income.

Capital One, while reporting third-quarter earnings of $374 million overall, says its credit card business decreased 45 percent from the same quarter a year ago and increased only 1.3 percent from the prior quarter. In a news release, Capital One confirmed that in order to combat future delinquencies, the company would "remain cautious on loan growth and continues to focus its marketing and originations on the parts of the U.S. card market that the company believes provide the best combination of risk-adjusted returns and losses." That means less card offers in parts of the country hardest hit by declining real estate values, among other economic factors.

Regional banks aren't faring much better. According to a recent article in "The Wall Street Journal," three Ohio financial institutions posted substantial losses in the third quarter as well. National City, Fifth Third and KeyCorp reported net losses of $729 million, $56 million, and $36 million, respectively -- all attributing their distress to risky commercial and residential real estate loans.

Amidst all the financial institution belt-tightening, consumers can expect the credit squeeze to continue through the holidays and into next year. According to AmEx CEO Kenneth Chenault, "Based on recent trends, we believe consumer and business sentiment is likely to deteriorate further and we see this translating into weaker economies around the globe well into 2009." Chenault also forewarned that AmEx will be announcing details of cost-reduction and revenue-building initiatives (including layoffs, according to "The Wall Street Journal") in the fourth quarter."

For the record, however, not all financial institutions are posting losses: USBancorp, M&T and Regions reported net income of $576 million, $91 million, and $79.5 million, respectively.

See related: Credit card corporate announcements confirm: delinquencies up, lending tightening 

Published: October 21, 2008

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