Capital One on Delinquency Rates and Fitch's Broad View

| About: Capital One (COF)

The beat goes on...

  • Capital One Financial Corp (NYSE:COF), one of the largest issuers of MasterCard and Visa credit cards, said on Monday credit quality deteriorated in several areas of lending in November, as unemployment grew and the economy eroded. (I wonder what this will be like a year from now when unemployment is materially higher?)
  • In a regulatory filing, the company said the annual net charge-off rate for U.S. credit cards increased to 6.98 percent in November from 6.54 percent in October, while the rate for loans at least 30 days delinquent rose to 4.70 percent to 4.48 percent. Net charge-offs reflect loans that a lender does not expect to be repaid.
  • In auto loans, the charge-off rate increased to 5.60 percent in November from 5.50 percent in October, while the delinquency rate rose to 9.48 percent from 9.14 percent.

Let's review (keep in mind charge off rates are up to the lender's discretion while delinquency rates are "fact")

Credit cards charge offs sequentially degrading 6.7% (month over month)
Credit card delinquency sequentially degrading 4.9%

Car charge off rates sequentially degrading 2.0%
Car delinquency sequentially degrading 3.7%

Now, it is dangerous to straightline one month over a full year and annualize but we are all about danger here at Fund My Mutual Fund.

Focusing on the delinquency rates since those are not judgment calls - credit card delinquency rose at an annualized rate (if Nov vs Oct held) at a 80% rate, and cars at a 44% rate. But not to worry, as people lose more jobs this will reverse... (all together now) ... in 6 months.

I can only assume all debts held by every American will be backstopped by the Federal Reserve by 2010. They are already accepting "nearly risk free!" auto loans on their balance sheet... no risk there.

  • In international operations, the charge-off rate fell to 5.17 percent in November from 6.15 percent in October, while the delinquency rate rose to 5.44 percent from 5.30 percent. (that doesn't make sense to me, after all America shall lead the world out of this mess, we're #1! USA! USA! USA! How can other countries do better? Nonsense - that does not fit with that the punditry tells me - it's heresay! These are unpatriotic statistics - hence I deem them useless since they do not fit into the thesis espoused daily on financial media)

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In a more broad sense Fitch has some predictions

  • A growing number of Americans are falling behind on their credit card bills. The latest Fitch Retail Credit Card Index shows 60-day delinquencies have increased by nearly 24 percent since August, to 4.8 percent.
  • Fitch expects charge-offs -- debts deemed uncollectible – to exceed 12 percent in the first half of 2009, up from current levels of about 9 percent.

Remember our long held thesis - credit cards are the last resort for hiding debt for Americans. Once those go, onward shall come the personal bankruptcies, despite the successful lobbying by credit card companies to make bankruptcy much more expensive on the normal folks of America. [Nov 16: New York Times - Downturn Drags More Consumers into Bankruptcy] No bailouts for these folks; they are "small enough" to fail.

Ah, I can remember the good ol' days of early fall 2007 when the punditry was so happily telling us not to doubt the US consumer, because spending was still going fast and furious. [Sep 15 '07:

Consumer Spending Continues, Where is the Money Coming From? Credit Cards]. 25 years of doubting the American consumer only led to inaccurate predictions. Any blog predicting otherwise was simply out of its mind. Blissful memories - the market was to make an all time high within a month... as it too drank the Kool Aid and "efficiently" predicted what was to come in 6 months. Ignorance is bliss; when one relies only on backward-looking statistics and refuses to use such out of box tactics such as "thinking". Mmm... many of the same names once again calling for the bottom "in 6 months". One of these times they are going to nail it...

[Dec 10, 07 -Consumers Increasingly Turning to Credit Cards]

[Dec 23, 07 -Unpaid Credit Cards Bedevil Americans]

[Jan 10: Credit Card Warnings Here, Credit Card Warnings There]

[Apr 4: Late Payments on Consumer Loans at 16 Year Highs]

[Jun 3: Credit Card Usage is Surging, Risking Another Debt Crisis]

[Jun 22: Americans Running Out of Places to Hide Debt - Now Credit Cards Go]

[Sep 23: Loan Delinquencies Continue their Path Upward]

[Oct 21: Moody's - Credit Card Chargeoffs Rising Rapidly]

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