Credit card companies face continued problems, as rising unemployment could send the number of late payments through the roof, giving investors reason to be wary despite the companies’ low stock valuations, Barron’s reported in its December 29 edition
The industry’s leading companies include: American Express, Bank of America, Citigroup, Capital One Financial Discover Financial Services and JP Morgan Chase.
Compounding the sector’s problems are that its primary source of funding, the asset-backed securities market, froze up in September, and the government recently limited some of the industry’s practices that boost revenue, Barron’s wrote.
Another risk is if the income retained by an issuer after accounting for credit losses falls too low, it could trigger a process by which cash is reserved to protect bondholders and potentially create "a liquidity event," Barron’s wrote.
With the asset-backed securities market essentially closed, credit card companies are increasingly relying on bank deposits, and will have a strong interest in acquiring banks, it said. But betting on the acquisition targets may prove a better choice than on the credit card companies, Barron’s wrote. (Reuters)