Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Amazon.com, Inc. (AMZN) -- Ignore unavailable to you. Want to Upgrade?

To: Derrick P. who wrote (75487)	8/26/1999 10:21:00 PM
From: Glenn D. Rudolph	Respond to of 164684

August 26, 1999 Consumers Pay Off Card Debt, Hurting Credit-Card Issuers By TRISTAN MABRY Staff Reporter of THE WALL STREET JOURNAL NEW YORK -- Consumers are paying off their credit-card bills faster than ever, as a strong economy and low borrowing costs have left many families flush with cash. But what is good for consumers turns out to be troubling for some credit-card issuers. Prices of many bank stocks sank on news that Bank One Corp., one of the nation's largest credit-card issuers, wouldn't meet Wall Street's profit expectations due mainly to slow growth and shrinking profit margins in its credit-card operation. Like many other banks, Bank One has been fighting tooth and nail to win new credit-card customers. But most economic indicators suggest that consumers are working hard to reduce their debt, not add to it. "The health of the economy and the fact that more people are working means people don't need as much access to credit," Christophe Germain, an economist at Moody's Investors Service Inc. said, adding, "but consumers are also more educated at managing their debt." Earlier this week, Moody's released a report showing consumers paid off an average 14.99% of their credit-card principal balances in the second quarter. That was up a full percentage point from a year earlier and was the highest repayment rate recorded in the 10 years Moody's has tracked such statistics. Bad Debt Down 16 Months in Row "Late in an economic expansion, the vast majority of consumers are in the best shape they are ever going to be in. In this expansion, consumers are in great shape, home values are high, incomes are up and jobs are plentiful," Robert Barbera, chief economist at Hoenig & Co., an investment and economic-consulting firm, said. To be sure, overall consumer debt remains huge by historical measures. Earlier this month, the Federal Reserve reported total consumer credit outstanding rose to $1.35 trillion in June. And some economists continue to warn that the heavy debt load will become a burden for consumers when the economy begins to slow. But for now, at least, consumers appear to be handling their obligations more carefully. Bad debt, or credit-card charge-offs, has fallen for 16 months in a row, according to Moody's. Consumer bankruptcies, which rose to a record last year, are slowing. Most importantly, the Federal Reserve says the growth in new revolving credit -- which includes bank credit cards, retail-store accounts and automobile payments -- is growing at an annual rate of about 5%, down sharply from a high of more than 20% in 1995. Mortgage Refinancings Helped Part of the explanation behind the improved credit performance of American households may have something to do with their homes. Mortgage refinancings, often used to consolidate credit-card and other revolving debt, helped some families lower their monthly bills. "People would wrap their credit-card debt into their new mortgage loans," David Orr, chief economist First Union Corp., said. "So now it makes sense to me that we're seeing an extraordinary repayment rate." The question for many economists is whether the end of the home-refinancing boom means more people will go back to credit cards when they need to finance a purchase. "There is a concern that consumers' cash flow will drop at the end of the refinancing boom," Wes Basil, a senior economist at Dismal Sciences Inc., said. That may be of little consolation to credit companies. But for the average American household, the outlook for consumers remains "very healthy."