Frank Rong1

'Panics Do Not Destroy Capital'

Credit card underwriting is based on the ability to pay, sumprime, no underwriting standards. credit card- high barriers to entry. Mortgage lending - no barriers to entry.

Mortgage messes are expected. rising home prices made homebuilders rish, then they build more until we had too much inventory, then the bottom felt out.

Credit card business are entirely different. few large rational players. During last two recessions, profits in industry did not get affected.

Your linear thinking is absurds

How Much Credit Is Too Much? Where AmEx Went Wrong

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How Much Credit Is Too Much? Where AmEx Went Wrong

STEVE,

Look, I careless about the trial, What I like about DFS has nothing to so with the lawsuit. As you know, the Visa bylaws was put in place in 1992, specifically against DFS. The problem DFS had over the years is acceptance, It was accepted far less places than Visa, the reason is simple, like I told you, Visa banned acquiring banks from doing business with DFS. That damage is huge. Who signs up merchant for acceptance? Acquiring banks, there are thousands of places that you can sign up to accept credit cards, but these places will not let you sign up for Discover. Why? because Visa told them, look, if you let merchants to take Discover, we will not let you do business with US again.

Forget about the past, let us look into the future, the truth are self-evident, the question is steve, can you handle the truth?

Discover has 18 million active users, Amex has about 23 millions. Discover card is not used as often as Visa for one simple reason, i.e. too many places did not take Discover Card. That's about to change for good. by early next year, Discover should reach parity, and it can partner up with merchants encourage more usages of Discover card, which means more money for DFS.

Visa on the other hand, will be looking at renew contracts with banks, Banks want to keep more of Visa's share of revenue, or they will move, no royalty there. Imagin sit down with Jamies Dimon or Ken Lewis, they will get very large concessions from them. Ken lewis even threaten to start a new network to compete against Visa.

How Much Credit Is Too Much? Where AmEx Went Wrong

V winner,

I am a value investor, I am not a friend of "GC", I am long DFS since it's the cheapest stock, yet this a great business. I figure DFS can earn about $2.50 a year, so it sells for 6 times normalized earning. comparing to V and MA, they sell for 30 tmes earning.

How Much Credit Is Too Much? Where AmEx Went Wrong

Thank you everyone for your comments, 41% of household make over 150,000 use an Amex card vs. 40%. Discover is a very successful buisness by any measure. Who are the rich? The rich people tend to be smart with their money, getting the best deal and in many ways they are frugal. Lots of "rich people" use Discover Card.

Amex cardholders tend to like to show off. In fact I know many people really broke, wrote bounced checks and carry an Amex Card. Amex has 23 million active users in the US, and I don't think we have that many rich people in US.

Enjoy your weekend,

Frank

How Much Credit Is Too Much? Where AmEx Went Wrong

1. Citi's card issuing business is a tiny part of its whole operation? It's a huge part, it's the only part that's making money for Citi. Citi is the third or fourth largest issuer in US. its card division brought in more than $3 billion in net income in 2007.

2. Discover's credit limits are low because they are targeting the low FICO, high risk sorts of people? Discover has been the best underwriter in the last few years. Discover Card is the hardest one to get.

3. Amex is a still great business, it's a business even an idiot can run it.