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Strategies & Market Trends : Can you beat 50% per month? -- Ignore unavailable to you. Want to Upgrade?

To: Sojourner Smith who wrote (4632)	10/28/2002 10:22:59 AM
From: Smiling Bob	Read Replies (1) \| Respond to of 19256

COF only down 40% this year Compare that to gains made during 90s Was up 250-300% from 98 to recent, based on easy growth Should return to at least 20, if not more finance.yahoo.com 30.92 bid now Easy Credit Hard to Find as Economy Sours Sunday October 27, 9:47 am ET By Philip Klein NEW YORK (Reuters) - The sales pitch, "No credit? No problem!" is now a major problem for lenders. When the economy was surging, lenders were willing to extend credit to anyone with an urge to spend, even those with a history of bankruptcy. Some lenders even boasted of their ability to offer online credit card approval in 30 seconds or less. ADVERTISEMENT But times have changed. The so-called subprime lending market that caters to those with poor or thin credit histories has been brought to its knees, hit by the twin blows of a weak economy and increased scrutiny by regulators. The new climate not only threatens to slow long-term growth prospects for the consumer credit industry, led by firms such as Providian Financial Corp. (NYSE:PVN - News), Capital One Financial Corp. (NYSE:COF - News) and retailers such as Sears, Roebuck and Co. (NYSE:S - News) It also makes it more difficult for low-income borrowers to get credit cards and loans for homes and cars. The changes come at a bad time for the fragile economy, as resilient consumer spending, which accounts for two-thirds of economic activity and has been aided in part by easy access to credit, has helped keep the economy afloat. "I don't think they'll be too many unemployed people walking into Circuit City and walking out with a big screen TV," said Fox-Pitt, Kelton analyst Reilly Tierney. GOING PLATINUM The number of credit card solicitations Americans receive by mail is still on pace to set a new record, exceeding the record 5 billion mailings from last year, according to Mail Monitor, a service of BAIGlobal Inc. But the pace of growth is leveling off after years of rapid expansion and offers are targeting richer borrowers. "A year and a half ago we saw a resurgence of gold (credit card) offers because they were being used to target less credit-worthy customers," said Andrew Davidson, a vice president at BAIGlobal. "When the economy turned last year we saw those decline and a bigger increase in the portion of platinum (card) offers." Platinum cards, which are offered to customers with better credit records, now account for eight out of 10 solicitations, he said. This is a turnaround for the subprime lending industry, which exploded in the 1990s as lenders were able to charge high-enough interest rates to justify extending credit to high risk borrowers. But as the economy soured, subprime credit card issuers such as Providian and Internet issuer NextCard (Other OTC:NXCD.PK - News) racked up huge losses on loan defaults. Providian was the worst performer in the Standard & Poor's 500 Index last year and has moved to exit the subprime market. The now-delisted NextCard, whose stock crested at over $50 in 1999 when it was touted for revolutionizing the credit card industry, has been barred from issuing cards. Its collapse is the subject of a probe by the Securities and Exchange Commission. The Federal Deposit Insurance Corp. said the collapse would cost the program $300 million to $400 million. NEW LENDING RULES Problems at Providian and NextCard prompted greater scrutiny of the credit card industry. Federal regulators are expected within weeks to unveil the final details of new rules that would ask issuers to boost their reserves for bad loans. Credit card issuer Capital One, which has grown at an explosive pace largely on adding subprime customers, last Tuesday told investors they could no longer count on the company to deliver the same type of growth given the new regulations. The company said it would now cut back on marketing and shy away from those with patchy credit. Its stock has fallen about 40 percent this year. Retailer Sears, Roebuck and Co. (NYSE:S - News), whose credit card operations at one point accounted for nearly two-thirds of its operating earnings, last week reported that quarterly profits fell as it held too many bad debts on credit card loans. The news pushed its stock to a 10-year low. PREDATORS? On top of difficulties faced by credit card issuers, companies that extend home equity loans to low income borrowers have been slammed by new "predatory lending" laws that try to prevent lenders from misleading borrowers into paying higher interest rates or unnecessary fees. Earlier this month Household International Inc. (NYSE:HI - News), the No. 2 U.S. consumer finance company, reached a record deal with 20 states worth as much as $484 million to settle predatory lending charges. The deal came weeks after Citigroup Inc. (NYSE:C - News) reached an $240 million predatory lending pact. It is too early to tell whether predatory lending legislation which has been passed in many states will have the unintended consequence of limiting options for low income borrowers by making it more difficult for lenders to do business. But even if lenders wish to continue in the subprime market, the technology may not exist for lenders to efficiently assess potential risk, according to Nicolas Retsinas, director of Harvard University's Joint Center For Housing Studies. "In the subprime market I don't think the risk dimensions are as finely tuned," Retsinas said. "I'm not sure that the technology measures and prices risk in a way that serves the marketplace." biz.yahoo.com