Shares of credit card companies fell Tuesday after Moody's Investors Service said charge-off rates will continue to rise through 2009 and an analyst cut her estimates on Capital One Financial Corp. on concerns of a continuing decline in consumer liquidity.
"There is little doubt that the credit card industry is in the midst of a challenging period and that collateral performance will get worse before it gets better," said Moody's Senior Vice President William Black in a report issued Monday, adding that his outlook for the industry is negative.
The charge-off rate on credit card debt rose to 5.7 percent in the first quarter, significantly above its 4.5 percent rate a year ago, the ratings service said. Charge-off rate refers to credit card balances written off as uncollectable as a percent of total loans outstanding.
"Charge-off rates are clearly on the rise and could well surpass the peaks of just over 7 percent that followed the recessions in 1991 and 2001," Moody's said. Assuming the economy begins to recover in the second half of this year, Moody's said it expects the charge-off rate to peak some time in 2009.
Additionally, Moody's noted that late-stage delinquencies -- three or more payments past due -- continue to rise.
Expecting a continued decline in consumer liquidity, Oppenheimer & Co. analyst Meredith Whitney on Tuesday cut her 2008 profit estimate on Capital One Financial Corp. to $5.15 per share from $5.55 per share. Analysts polled by Thomson Financial, on average, estimate full-year earnings of $5.23 per share.
Capital One shares dropped $2.05, or 4 percent, to $49.66 in midday trading. Shares have traded between $37.41 and $82.25 in the past 12 months.
Elsewhere in the sector shares of MasterCard Inc. fell $4.97 to $275.10; American Express Co. lost $1.28, or 2.6 percent, to $47.30; Discover Financial Services tumbled $1.04, or 5.6 percent, to $17.63. |
