RiskReturnOptimizer

Be Prepared for S&P to Hit 350 by June 2010

It's unfortunate that Advanta is exiting the small business credit card sector. My sense is that another bank card issuer is going to expand their credit card offering in this segment aggressively.

The rules for consumer credit cards just got a lot tighter / less profitable for credit card issuers. Luckily (from bank's perspectives), small business (e.g., V / MA include them in Commercial Card Business) credit cards are not effected by the Bill of Rights, so there is tremendous incentive for major issuers (Chase, BofA, CapitalOne) to apply their data mining strategies to identify previous consumer card customers that are eligible to be migrated to Small Business Cards (e.g., 1099 IT consultants, dentists, doctors, restaurant owners, ... , even Seeking Alpha traders ... could all have their cards flipped from consumer to small business).

With some success from TALF, cost of funds are coming down from the post-Lehman distressed levels. New small business credit cards can be quite profitable, as you do not have to reserve for much credit losses for the first 12-18 months (new vintage); annual fees are more common, 0% introductory rates are not essential, and transactions (interchange income) can be quite high.

In summary -- credit is starting to become more available for small businesses; in 6-12 months, more are more issuers will expand their solicitation efforts as their portfolio profitability starts to improve (credit card losses are expected to peak in Q3 2010, so loan loss reserves should peak in Q3 2009).