Plastic Cracks Under Pressure

This article can be read at http://www.forbes.com/2008/12/10/mastercard-visa-credit-markets-equity-cx_mp_1210markets19.html?partner=email.

Market Scan
Melinda Peer, 12.10.08, 01:50 PM EST
Credit card delinquency rates rose in Q3 and aren't likely to drop in 2009.

More consumers put down plastic in the third quarter but bank credit card delinquencies are on the rise, according to an industry report released Wednesday, the same day that an analyst separately downgraded MasterCard and Visa on deteriorating fundamentals.

According to a TransUnion.com report, bank credit card delinquencies rose in the third quarter following two quarterly declines. Ezra Becker, a principal consultant with the agency's financial services group, said companies were being proactive regarding the possible risk but warned that continued weakness in the housing market may limit their abilities to control the situation.

U.S. bankcard borrower debt surged 6.0% from a year ago and rose 1.6% from last quarter, to an average of $5,710. Nationally, the ratio of borrower delinquencies on at least one bankcard account is up 5.8% year-over-year. Third-quarter delinquencies climbed to 1.1%, representing a 4.8% increase from the prior quarter.

"The third quarter of 2008 saw a drop in the nation's disposable income per capita and an increase in unemployment, putting additional burden on the consumer's ability to repay credit card debt," Becker said, adding that falling energy prices may have lessened third-quarter delinquencies.

According to agency estimates, delinquency rates could flatten in the fourth quarter as consumers change spending patterns, especially during a quarter typified by high spending for the holidays. In 2009, however, TransUnion said the national credit card delinquency rate could get as high as 1.4% by year's end.

Separately on Wednesday, Cowen & Co. Analyst Moshe Katrl downgraded both MasterCard (nyse: MA - news - people ) and Visa (nyse: V - news - people ) to "underperform" from "outperform" on weakened fundamentals. MasterCard shares lost 77 cents, or 0.5%, at $142.44 and Visa's stock shed 71 cents, or 1.3%, at $52.82. Shares of Discover Financial Services (nyse: DFS - news - people ) also slipped during Wednesday's afternoon trading session. Its stock was last down by 24 cents, or 2.3%, at $10.11.

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