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Credit Card Crisis To Grip Britain, I M F Warns


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http://www.telegraph.co.uk/finance/persona...-IMF-warns.html

Britain’s credit card debt crisis will get significantly worse in the coming months with a wave of consumer payment defaults, the International Monetary Fund has warned.

By Alastair "Alli" Jamieson

Published: 1:15AM BST 27 Jul 2009

Britain's credit card debt crisis will get significantly worse in the coming months with a wave of consumer payment defaults, the International Monetary Fund has warned.

National Debtline, the UK charity, received 41,000 calls in May Photo: GETTY

The organisation expects £1.5bn of consumer debt across Europe will not be repaid, much of it in Britain which has the highest number of credit card borrowers on the continent.

Analysts say failure to pay credit card bills is likely to increase as unemployment rises and the number of personal insolvencies, which reached 29,774 in the first quarter of the year, continues to rise.

Another shoe about to drop as consumer debt catches up with the Alice in Wonderland "debt is wealth" policies of Brown and Co.

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http://www.telegraph.co.uk/finance/persona...-IMF-warns.html

Britain’s credit card debt crisis will get significantly worse in the coming months with a wave of consumer payment defaults, the International Monetary Fund has warned.

By Alastair "Alli" Jamieson

Published: 1:15AM BST 27 Jul 2009

Britain's credit card debt crisis will get significantly worse in the coming months with a wave of consumer payment defaults, the International Monetary Fund has warned.

National Debtline, the UK charity, received 41,000 calls in May Photo: GETTY

The organisation expects £1.5bn of consumer debt across Europe will not be repaid, much of it in Britain which has the highest number of credit card borrowers on the continent.

Analysts say failure to pay credit card bills is likely to increase as unemployment rises and the number of personal insolvencies, which reached 29,774 in the first quarter of the year, continues to rise.

Another shoe about to drop as consumer debt catches up with the Alice in Wonderland "debt is wealth" policies of Brown and Co.

Aaah, if only the debtors could just print the money to cover their obligations. Maybe the government can step in to bail out the credit card companies and do it for them?

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Morning RB. Off topic, but how about an update? Are you still holding dollars?

1/3rd in UKPounds ready to buy a house, perhaps next year if things are rough enough price-wise (another 30% down--at least).

2/3rds in US $ on the basis that this recession is far from over and the flight to safety is still likely. Also the US are "first in" and will be first out. The Eurozone has most to suffer in the coming years and I cannot see the pound holding above 1.50 in the medium to long term.

Still staying clear of stocks although I did buy a few Honeywell below $30 for a long term* punt--they also pay almost 4% in dividends which is better than the less that .50% you get on savings in the US.

___________________

* they might go down with the rest as the stockmarket rally fizzles and reality returns.

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1/3rd in UKPounds ready to buy a house, perhaps next year if things are rough enough price-wise (another 30% down--at least).

2/3rds in US $ on the basis that this recession is far from over and the flight to safety is still likely. Also the US are "first in" and will be first out. The Eurozone has most to suffer in the coming years and I cannot see the pound holding above 1.50 in the medium to long term.

Still staying clear of stocks although I did buy a few Honeywell below $30 for a long term* punt--they also pay almost 4% in dividends which is better than the less that .50% you get on savings in the US.

___________________

* they might go down with the rest as the stockmarket rally fizzles and reality returns.

http://www.24hgold.com/english/contributor...206582250G10020

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This is clearly the second wave of the banking crisis that many on here predicted. From the FT

http://www.ft.com/cms/s/0/02db48fa-7a11-11...144feabdc0.html

Europe braced for rising credit card defaults

By Jane Croft and Megan Murphy in London and Francesco Guerrera in New York

Published: July 26 2009 21:09 | Last updated: July 26 2009 21:09

Lenders in Europe bracing themselves for a rising wave of consumer debt defaults as the credit card crisis that has caused billions of dollars in losses among US banks spreads across the Atlantic.

The International Monetary Fund estimates that of US consumer debt totalling $1,914bn, about 14 per cent will turn sour. It expects that 7 per cent of the $2,467bn of consumer debt in Europe will be lost, with much of that falling in the UK, the continent’s biggest nation of credit card borrowers.

National Debtline of the UK said that the number of calls it had received from UK consumers worried about loans, credit cards and mortgage arrears had reached 41,000 in May – double the 20,000 calls it had received in May 2008. It added that the number of calls showed no sign of abating.

In the US, credit card defaults have been rising for months as a spike in unemployment and the most severe economic downturn since the Great Depression took their toll on overstretched consumers.

Banks such as Citigroup, Bank of America, JPMorgan Chase and Wells Fargo and credit card issuers such as American Express have suffered billions of dollars in losses in their credit card portfolios and have warned of more to come.

The rate of US credit card losses has overtaken the rate of unemployment in recent months – a highly unusual occurrence that makes it more difficult for card issuers to forecast future losses.

In the UK, the latest credit card indices from Moody’s, the ratings agency, annualised charge-off rates have risen from 6.4 per cent of loans in May 2008 to 9.37 per cent in May 2009 show that In the US, that rate is above 10 per cent.

Analysts expect further defaults as UK unemployment rises and personal insolvencies, which reached 29,774 in the first quarter of the year, continue to increase.

The falling UK housing market and more stringent lending requirements by banks has also meant that indebted consumers can now no longer rely on withdrawing equity from their homes to pay off other debts such as credit cards or unsecured loans.

Jonathan Pierce, analyst at Credit Suisse, said in a recent note that UK credit card securitisation had suffered “a very sharp rise in arrears to a level well beyond the previous peak seen in 2006â€.

UK banks, which begin reporting their first-half results next week, have already warned that they faced a sharp increase in credit card debts, although this is relatively small in the context of writedowns in other areas such as commercial lending.

Barclays, the UK’s biggest credit card lender with 11.7m UK customers through Barclaycard, said in May that UK credit card delinquencies had increased in the first quarter of the year, reflecting adverse economic conditions and rising unemployment.

As a result it had been reducing credit limits and tightening approval rates for new credit cards which were running at less than 50 per cent in March.

Lloyds Banking Group also said in May it had seen impairments rise in both secured and unsecured lending. Lloyds will have to absorb any future losses on credit cards itself as it has not been able to include credit card loans among the £260bn of toxic assets it has insured with the UK government.

With UK trends tending to trail the US by six months, analysts will be in particular watching the reporting season closely for any signs that default rates on UK securitised credit card debt is rising.

The severity of the financial crisis coupled with rising unemployment on both sides of the Atlantic have stoked fears of a substantially higher default rate in the coming months.

IN-DEPTH ANALYSIS - FT EDITORIAL (LONG, BUT WORTH A READ)

http://www.ft.com/cms/s/0/30eee15c-7a07-11...144feabdc0.html

Mick Longfellow is teetering on the edge of financial chaos. A dedicated teacher married to an equally hard-working nurse, living in a modest house in Newcastle in the north-east of England, the pair spent the past decade treating themselves to gadgets, gizmos and home upgrades.

They put in new windows. They bought the biggest television and sound system their living room could accommodate. They changed their cars every year or two. With two children to spoil as well, they were living on credit – lots of it. There were store cards, car loans, personal loans and credit cards.

Now, amid the recession, those lenders want their money back. “The bank just closed down our overdraft. That was the killer blow,†says Mr Longfellow. But with the family’s debts running to £30,000 ($49,200, €34,600), far more than their annual disposable income, repayment is going to take a very long time.

It is a sad blow for the Longfellows. But multiply one family’s debts by the millions of people across the world who are in an even worse state, losing jobs and homes, and the scale of the problem is clear. Estimates from the International Monetary Fund say that of US consumer debt totalling $1,914bn (£1,166bn, €1,346bn), 14 per cent will turn bad. For Europe, it expects 7 per cent of the $2,467bn of consumer debt will be lost, with much of that falling in the UK, the continent’s biggest nation of borrowers.

In the US, the carnage is well under way. For nearly two years, banks ranging from giants such as Citigroup to small community lenders have been bleeding as the economic downturn caused “maxed out†consumers to fall behind on their repayments of credit cards, automotive loans, student loans and other once-plentiful forms of credit.

In recent months, what started as a debacle has turned into a nightmare. As unemployment continued to rise and house prices kept falling, the rate of defaults has surpassed historic norms, rendering many of the computer models used by US banks to predict losses useless. In this phase of the crisis, lenders are flying blind.

“We are asking boards of financial institutions to sit down, think about plausible nightmare scenarios and then take measures to deal with them,†says Peter Niculescu, a former executive at Fannie Mae, the US mortgage institution, who is now a partner at Capital Market Risk Advisors, a financial consultancy.

America’s story makes a frightening read for banks on the other side of the Atlantic. The question now is what happens next in Europe, particularly in the UK, the continent’s biggest consumer lending market, where concrete signs of mass stress have so far been less obvious.

“In the UK, particularly, we haven’t seen a lot of discussion about [consumer debt default],†says Nathan Powell, head of financial sector research at RiskMetrics, a credit data group. “There has been a focus on banks’ capital, liquidity and their mortgage exposure.â€

With much of the world in recession, the banking industry has been girding itself for some time against the threat – in recessions banks expect to make losses on loans. But some experts worry whether banks active in Europe, many of which have been rejuvenated by a quick bounce-back in their investment banking operations in the first half of the year, are yet taking sufficient account of the damage that their consumer loan books could yet wreak on profits.

“Proponents of a V-shaped [economic] recovery are underestimating how much rising unemployment and an unstable structure of indebtedness can lengthen and deepen this recession,†says Sandy Chen, banks analyst at Panmure Gordon in London.

Historic norms suggest that unsecured consumer loans default at a rate of less than 5 per cent in periods of recession. Although for credit cards the rate is higher, at 7 to 9 per cent, companies charge heftier interest rates to offset the increased risk of default.

But this is no ordinary recession – and no one can agree how bad it is going to get. Some economists argue that the worst may already be over but many believe in a “double-dip†downturn, with another fall-off in demand likely to come later this year. Whether or not that happens, the effects of the first dip are still filtering through to the real world.

Unemployment is still rising – and fast – on both sides of the Atlantic. More than 9 per cent of working-age Americans are now without work, nearly double the year-ago figure, and the UK unemployment tally is at 7.6 per cent. There are widespread expectations that both numbers could soon exceed 10 per cent – and joblessness, unsurprisingly, is the biggest driver of consumer loan default.

The real unknown, however, is to what extent a recession already on a par with the 1930s will be turned into something even worse by record levels of consumer debt. British consumers’ leverage – how much they owe as a proportion of income – has been rising fast for a decade and for the past nine months has been running at a record high of more than 170 per cent – far bigger than anywhere else in Europe.

In the US, the percentages have been rising too, and are hovering around the 140 per cent mark. In the last recession, of the early 1990s, UK leverage was barely more than 100 per cent and in the US it was less than 90 per cent. “The severity of this crisis has taken everyone by surprise,†says Mr Powell at RiskMetrics. “Delinquencies and charge-offs [the percentage of outstanding loans that is unlikely to be recouped] are deteriorating at a faster rate than anyone expected a year ago.â€

. . .

Industry executives in Europe are beginning to sound like their US counterparts in raising the alarm about spiralling losses on unsecured consumer debt as one of their biggest areas of concern.

“We think the market in general is far too optimistic about the outlook for unsecured consumer debt defaults,†says Antonio Horta-Osorio, chief executive of Abbey, the UK business of Spain’s Santander. “We have been actively reducing our exposure to consumer lending, so that it is now half the size it was three years ago.â€

The US experience is showing the way. “It started in subprime mortgages, then it moved to prime mortgages, then to car financing,†says Mark Greene, chief executive of Fico, the US credit checking group. “Now it’s moving to credit cards.â€

Over the past 18 months, US banks and card issuers have been coping with the fallout of millions of overleveraged consumers defaulting on an increasing portion of their unsecured debt. Loss rates on credit cards have almost tripled since January 2007 as soaring unemployment, housing woes and the stock market’s troubles prompted an ever-increasing number of borrowers to stop paying their balances.

Perhaps more worryingly, the long-held relationship between credit card loss rates and unemployment is breaking down. Credit card loss rates have in the past closely tracked unemployment, topping the jobless rate on just a handful of occasions, and only once by any significant margin. That was in 2005 as a flood of borrowers entered bankruptcy and wrote off their credit card debt before the passage of a law that made it harder to file for bankruptcy.

But in this recession, job redundancies have been compounded by other sources of distress to push credit card losses higher. Losses on US credit cards as measured by Moody’s credit card index were at a record of close to 10.8 per cent in June, ahead of the nation’s 9.5 per cent unemployment rate.

As the recession has deepened, meanwhile, bankruptcy filings are once more approaching 2005 levels, fuelling the credit card meltdown.

For some banks, losses on credit cards have been severe for months. Credit card loans originated by Washington Mutual, the troubled bank bought by JPMorgan Chase last September, are defaulting at a staggering rate of 24 per cent. Bank of America’s June charge-offs were close to 14 per cent and delinquencies – loans that have not been paid – were 1.9 per cent, exceeding the totals for Citigroup, JPMorgan, American Express, Capital One and Discover.

If average charge-off rates reach 18 to 20 per cent, credit card losses for US issuers could exceed $82bn, the Federal Reserve said in May after stress tests on 19 large lenders.

Such losses are proving to be a problem even in cases where the banks thought they had offlaid the risk. Banks such as Citigroup, JPMorgan Chase and Bank of America have had to come to the rescue of the off-balance-sheet vehicles that help them to fund credit card loans, as these vehicles have been weakened by consumer defaults. In Britain, banks argue that they have been more prudent than peers elsewhere, owing to the scare of mass defaults four years ago after the law was changed to make personal bankruptcy via Individual Voluntary Arrangements far easier. That prompted the biggest lenders – Barclays, Lloyds, Royal Bank of Scotland, HBOS (now part of Lloyds) and HSBC – to toughen their criteria for lending: they lent less, and only to people with decent credit records.

But what the banks do not point out is how many of them then let their standards slip at a crucial time. Just ahead of the financial crisis, in 2007, the big five banks (now the big four) started an aggressive expansion of their lending. Barclays is typical – after tempering its consumer lending in 2006, for example, it expanded it from less than £38bn to more than £53bn over the next two years. That kind of expansion at Lloyds and RBS has compounded those groups’ balance sheet woes.

When the UK banks start reporting their six-monthly results early next month, they will give some idea of how bad those bad debts are turning out to be. They are already planning for default rates at the top end of historic levels.

. . .

One of the best insights into the likely patterns in consumer debt defaults comes from the niche world of credit card securitisations – where the performance data of a second-hand package of a bank’s credit card “receivablesâ€, or credit repayments, are published monthly.

The so-called Master Trusts of US credit card debt show default rates running at 9 to 18 per cent, up by 50 to 100 per cent over the past year, with most of the rise coming since the start of 2009. With UK trends tending to trail the US by six months, analysts are now watching closely for signs that British securitisations, with default rates running at a relatively stable 7 to 14 per cent, start rising.

The focus on the securitisation data is a stark reminder, too, that it if this highly leveraged recession does lead to record levels of credit defaults, it will not just be the banks that suffer. Analysts estimate that in the UK close to one-third – and in the US about two-thirds – of consumer debt has historically been securitised. If those packages of debt turn bad – or even worse than they had already been reckoned to be – that would hit the investors that are holding them hard.

Some of those investors will be investment banks – compounding the impact of the core lending losses to which their commercial banking rivals (or sister operations) are already exposed.

In other cases, the pain will be even more broadly felt, says Huw van Steenis, analyst at Morgan Stanley. “I think the bigger holders now of securitisations are insurance companies and pension funds.†For families such as the Longfellows, with retirement looming in the next decade, that threatens to be the real sting in the tail.

Edited by uncle_monty
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This is clearly the second wave of the banking crisis that many on here predicted. From the FT

http://www.ft.com/cms/s/0/02db48fa-7a11-11...144feabdc0.html

Europe braced for rising credit card defaults

By Jane Croft and Megan Murphy in London and Francesco Guerrera in New York

Published: July 26 2009 21:09 | Last updated: July 26 2009 21:09

Lenders in Europe bracing themselves for a rising wave of consumer debt defaults as the credit card crisis that has caused billions of dollars in losses among US banks spreads across the Atlantic.

The International Monetary Fund estimates that of US consumer debt totalling $1,914bn, about 14 per cent will turn sour. It expects that 7 per cent of the $2,467bn of consumer debt in Europe will be lost, with much of that falling in the UK, the continent’s biggest nation of credit card borrowers.

National Debtline of the UK said that the number of calls it had received from UK consumers worried about loans, credit cards and mortgage arrears had reached 41,000 in May – double the 20,000 calls it had received in May 2008. It added that the number of calls showed no sign of abating.

In the US, credit card defaults have been rising for months as a spike in unemployment and the most severe economic downturn since the Great Depression took their toll on overstretched consumers.

Banks such as Citigroup, Bank of America, JPMorgan Chase and Wells Fargo and credit card issuers such as American Express have suffered billions of dollars in losses in their credit card portfolios and have warned of more to come.

The rate of US credit card losses has overtaken the rate of unemployment in recent months – a highly unusual occurrence that makes it more difficult for card issuers to forecast future losses.

In the UK, the latest credit card indices from Moody’s, the ratings agency, annualised charge-off rates have risen from 6.4 per cent of loans in May 2008 to 9.37 per cent in May 2009 show that In the US, that rate is above 10 per cent.

Analysts expect further defaults as UK unemployment rises and personal insolvencies, which reached 29,774 in the first quarter of the year, continue to increase.

The falling UK housing market and more stringent lending requirements by banks has also meant that indebted consumers can now no longer rely on withdrawing equity from their homes to pay off other debts such as credit cards or unsecured loans.

Jonathan Pierce, analyst at Credit Suisse, said in a recent note that UK credit card securitisation had suffered “a very sharp rise in arrears to a level well beyond the previous peak seen in 2006â€.

UK banks, which begin reporting their first-half results next week, have already warned that they faced a sharp increase in credit card debts, although this is relatively small in the context of writedowns in other areas such as commercial lending.

Barclays, the UK’s biggest credit card lender with 11.7m UK customers through Barclaycard, said in May that UK credit card delinquencies had increased in the first quarter of the year, reflecting adverse economic conditions and rising unemployment.

As a result it had been reducing credit limits and tightening approval rates for new credit cards which were running at less than 50 per cent in March.

Lloyds Banking Group also said in May it had seen impairments rise in both secured and unsecured lending. Lloyds will have to absorb any future losses on credit cards itself as it has not been able to include credit card loans among the £260bn of toxic assets it has insured with the UK government.

With UK trends tending to trail the US by six months, analysts will be in particular watching the reporting season closely for any signs that default rates on UK securitised credit card debt is rising.

The severity of the financial crisis coupled with rising unemployment on both sides of the Atlantic have stoked fears of a substantially higher default rate in the coming months.

IN-DEPTH ANALYSIS - FT EDITORIAL (LONG, BUT WORTH A READ)

http://www.ft.com/cms/s/0/30eee15c-7a07-11...144feabdc0.html

Mick Longfellow is teetering on the edge of financial chaos. A dedicated teacher married to an equally hard-working nurse, living in a modest house in Newcastle in the north-east of England, the pair spent the past decade treating themselves to gadgets, gizmos and home upgrades.

They put in new windows. They bought the biggest television and sound system their living room could accommodate. They changed their cars every year or two. With two children to spoil as well, they were living on credit – lots of it. There were store cards, car loans, personal loans and credit cards.

Now, amid the recession, those lenders want their money back. “The bank just closed down our overdraft. That was the killer blow,†says Mr Longfellow. But with the family’s debts running to £30,000 ($49,200, €34,600), far more than their annual disposable income, repayment is going to take a very long time.

It is a sad blow for the Longfellows. But multiply one family’s debts by the millions of people across the world who are in an even worse state, losing jobs and homes, and the scale of the problem is clear. Estimates from the International Monetary Fund say that of US consumer debt totalling $1,914bn (£1,166bn, €1,346bn), 14 per cent will turn bad. For Europe, it expects 7 per cent of the $2,467bn of consumer debt will be lost, with much of that falling in the UK, the continent’s biggest nation of borrowers.

In the US, the carnage is well under way. For nearly two years, banks ranging from giants such as Citigroup to small community lenders have been bleeding as the economic downturn caused “maxed out†consumers to fall behind on their repayments of credit cards, automotive loans, student loans and other once-plentiful forms of credit.

In recent months, what started as a debacle has turned into a nightmare. As unemployment continued to rise and house prices kept falling, the rate of defaults has surpassed historic norms, rendering many of the computer models used by US banks to predict losses useless. In this phase of the crisis, lenders are flying blind.

“We are asking boards of financial institutions to sit down, think about plausible nightmare scenarios and then take measures to deal with them,†says Peter Niculescu, a former executive at Fannie Mae, the US mortgage institution, who is now a partner at Capital Market Risk Advisors, a financial consultancy.

America’s story makes a frightening read for banks on the other side of the Atlantic. The question now is what happens next in Europe, particularly in the UK, the continent’s biggest consumer lending market, where concrete signs of mass stress have so far been less obvious.

“In the UK, particularly, we haven’t seen a lot of discussion about [consumer debt default],†says Nathan Powell, head of financial sector research at RiskMetrics, a credit data group. “There has been a focus on banks’ capital, liquidity and their mortgage exposure.â€

With much of the world in recession, the banking industry has been girding itself for some time against the threat – in recessions banks expect to make losses on loans. But some experts worry whether banks active in Europe, many of which have been rejuvenated by a quick bounce-back in their investment banking operations in the first half of the year, are yet taking sufficient account of the damage that their consumer loan books could yet wreak on profits.

“Proponents of a V-shaped [economic] recovery are underestimating how much rising unemployment and an unstable structure of indebtedness can lengthen and deepen this recession,†says Sandy Chen, banks analyst at Panmure Gordon in London.

Historic norms suggest that unsecured consumer loans default at a rate of less than 5 per cent in periods of recession. Although for credit cards the rate is higher, at 7 to 9 per cent, companies charge heftier interest rates to offset the increased risk of default.

But this is no ordinary recession – and no one can agree how bad it is going to get. Some economists argue that the worst may already be over but many believe in a “double-dip†downturn, with another fall-off in demand likely to come later this year. Whether or not that happens, the effects of the first dip are still filtering through to the real world.

Unemployment is still rising – and fast – on both sides of the Atlantic. More than 9 per cent of working-age Americans are now without work, nearly double the year-ago figure, and the UK unemployment tally is at 7.6 per cent. There are widespread expectations that both numbers could soon exceed 10 per cent – and joblessness, unsurprisingly, is the biggest driver of consumer loan default.

The real unknown, however, is to what extent a recession already on a par with the 1930s will be turned into something even worse by record levels of consumer debt. British consumers’ leverage – how much they owe as a proportion of income – has been rising fast for a decade and for the past nine months has been running at a record high of more than 170 per cent – far bigger than anywhere else in Europe.

In the US, the percentages have been rising too, and are hovering around the 140 per cent mark. In the last recession, of the early 1990s, UK leverage was barely more than 100 per cent and in the US it was less than 90 per cent. “The severity of this crisis has taken everyone by surprise,†says Mr Powell at RiskMetrics. “Delinquencies and charge-offs [the percentage of outstanding loans that is unlikely to be recouped] are deteriorating at a faster rate than anyone expected a year ago.â€

. . .

Industry executives in Europe are beginning to sound like their US counterparts in raising the alarm about spiralling losses on unsecured consumer debt as one of their biggest areas of concern.

“We think the market in general is far too optimistic about the outlook for unsecured consumer debt defaults,†says Antonio Horta-Osorio, chief executive of Abbey, the UK business of Spain’s Santander. “We have been actively reducing our exposure to consumer lending, so that it is now half the size it was three years ago.â€

The US experience is showing the way. “It started in subprime mortgages, then it moved to prime mortgages, then to car financing,†says Mark Greene, chief executive of Fico, the US credit checking group. “Now it’s moving to credit cards.â€

Over the past 18 months, US banks and card issuers have been coping with the fallout of millions of overleveraged consumers defaulting on an increasing portion of their unsecured debt. Loss rates on credit cards have almost tripled since January 2007 as soaring unemployment, housing woes and the stock market’s troubles prompted an ever-increasing number of borrowers to stop paying their balances.

Perhaps more worryingly, the long-held relationship between credit card loss rates and unemployment is breaking down. Credit card loss rates have in the past closely tracked unemployment, topping the jobless rate on just a handful of occasions, and only once by any significant margin. That was in 2005 as a flood of borrowers entered bankruptcy and wrote off their credit card debt before the passage of a law that made it harder to file for bankruptcy.

But in this recession, job redundancies have been compounded by other sources of distress to push credit card losses higher. Losses on US credit cards as measured by Moody’s credit card index were at a record of close to 10.8 per cent in June, ahead of the nation’s 9.5 per cent unemployment rate.

As the recession has deepened, meanwhile, bankruptcy filings are once more approaching 2005 levels, fuelling the credit card meltdown.

For some banks, losses on credit cards have been severe for months. Credit card loans originated by Washington Mutual, the troubled bank bought by JPMorgan Chase last September, are defaulting at a staggering rate of 24 per cent. Bank of America’s June charge-offs were close to 14 per cent and delinquencies – loans that have not been paid – were 1.9 per cent, exceeding the totals for Citigroup, JPMorgan, American Express, Capital One and Discover.

If average charge-off rates reach 18 to 20 per cent, credit card losses for US issuers could exceed $82bn, the Federal Reserve said in May after stress tests on 19 large lenders.

Such losses are proving to be a problem even in cases where the banks thought they had offlaid the risk. Banks such as Citigroup, JPMorgan Chase and Bank of America have had to come to the rescue of the off-balance-sheet vehicles that help them to fund credit card loans, as these vehicles have been weakened by consumer defaults. In Britain, banks argue that they have been more prudent than peers elsewhere, owing to the scare of mass defaults four years ago after the law was changed to make personal bankruptcy via Individual Voluntary Arrangements far easier. That prompted the biggest lenders – Barclays, Lloyds, Royal Bank of Scotland, HBOS (now part of Lloyds) and HSBC – to toughen their criteria for lending: they lent less, and only to people with decent credit records.

But what the banks do not point out is how many of them then let their standards slip at a crucial time. Just ahead of the financial crisis, in 2007, the big five banks (now the big four) started an aggressive expansion of their lending. Barclays is typical – after tempering its consumer lending in 2006, for example, it expanded it from less than £38bn to more than £53bn over the next two years. That kind of expansion at Lloyds and RBS has compounded those groups’ balance sheet woes.

When the UK banks start reporting their six-monthly results early next month, they will give some idea of how bad those bad debts are turning out to be. They are already planning for default rates at the top end of historic levels.

. . .

One of the best insights into the likely patterns in consumer debt defaults comes from the niche world of credit card securitisations – where the performance data of a second-hand package of a bank’s credit card “receivablesâ€, or credit repayments, are published monthly.

The so-called Master Trusts of US credit card debt show default rates running at 9 to 18 per cent, up by 50 to 100 per cent over the past year, with most of the rise coming since the start of 2009. With UK trends tending to trail the US by six months, analysts are now watching closely for signs that British securitisations, with default rates running at a relatively stable 7 to 14 per cent, start rising.

The focus on the securitisation data is a stark reminder, too, that it if this highly leveraged recession does lead to record levels of credit defaults, it will not just be the banks that suffer. Analysts estimate that in the UK close to one-third – and in the US about two-thirds – of consumer debt has historically been securitised. If those packages of debt turn bad – or even worse than they had already been reckoned to be – that would hit the investors that are holding them hard.

Some of those investors will be investment banks – compounding the impact of the core lending losses to which their commercial banking rivals (or sister operations) are already exposed.

In other cases, the pain will be even more broadly felt, says Huw van Steenis, analyst at Morgan Stanley. “I think the bigger holders now of securitisations are insurance companies and pension funds.†For families such as the Longfellows, with retirement looming in the next decade, that threatens to be the real sting in the tail.

The main point for me is this "The real unknown, however, is to what extent a recession already on a par with the 1930s will be turned into something even worse by record levels of consumer debt" this is why this present scenario is nothing like the 30`s or the 80`s/early 90`s, and I don`t think there is much point in making too many comparisons, the masses are different now, they have different expectations and have been exposed to amounts of money their parents and grandprents wouldn`t have earned in their lifetime. The 30k figure for the teacher and nurse seems too low, if they were going hard on the TV`s holidays and gadgets it would be nearer 100k? and this will be replicated up and down the country by people that thought MEWing was a basic human right. I ran up 30k in loans on nothing more than a few hangovers and a few foreign trips on easy jet, and I was quite restrained in my spending really, the majority IMO are in much deeper than that. The sheeple now have a once in a lifetime chance to kill the bloodsucking beast that is destroying their lives, stop playing the game and stop paying back, it was never an equal game, let the banks sort out their mess and let the government give you a free house until it is resolved.

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HOLA4410
The sheeple now have a once in a lifetime chance to kill the bloodsucking beast that is destroying their lives, stop playing the game and stop paying back, it was never an equal game, let the banks sort out their mess and let the government give you a free house until it is resolved.

Spot on.

Banksters relaxed criteria, ramped up their lending, took their ridiculous free money bonuses, then pull the rug, foreclose, cancel overdrafts, forcing defaults, hand the whole lot over to the taxpayer to under-write, extracting £10m pay packets as they do so.

Punters should simply default en masse - Call the banksters' bluff.

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HOLA4412
The lenders knew this would coming and have done hardly anything to limt the timebomb, bad debters have just been allowed to keep useing their cards.

If the banks suddenly start slashing the credit card limits of the Longfellows and their ilk, how long do you think it'll be before Darling whines that they have a duty to carry on letting them buy plasma TVs and BMWs on tick?

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HOLA4413

http://www.creditaction.org.uk/july-2009.html

Debt Statistics / July 2009

Total UK personal debt

Total UK personal debt at the end of May 2009 stood at £1,459bn. This has slowed further to 1.4% in the last 12 months which equates to an increase of ~ £17.9bn (the increase was ~£116bn in January 2008).

Total secured lending on dwellings at the end of May 2009 stood at £1,226bn. This has slowed further by 0.2% to 1.3% in the last 12 months.

Total consumer credit lending to individuals at the end of May 2009 was £233bn. This has continued to fall to 2.3% in the last 12 months.

Total lending in May 2009 grew by £0.6bn; secured lending grew by £0.3bn in the month; consumer credit lending grew by £0.3bn (total lending in January 2008 grew by £8.4bn).

Average household debt in the UK is ~ £9,305 (excluding mortgages). This figure increases to £21,640 if the average is based on the number of households who actually have some form of unsecured loan.

Average household debt in the UK is ~ £58,360 (including mortgages).

If you add to this the 2009 budget figure for public sector net debt (PSND) expected in 2013-14 then this figure rises to £116,200 per household.

Average owed by every UK adult is ~ £30,480 (including mortgages). This is 132% of average earnings.

Average outstanding mortgage for the 11.1m households who currently have mortgages now stands at ~ £110,480.

Britain's interest repayments on personal debt were £66.2bn in the last 12months. The average interest paid by each household on their total debt is approximately £2,650 each year.

Average consumer borrowing via credit cards, motor and retail finance deals, overdrafts and unsecured personal loans has risen to £4,860 per average UK adult at the end of May 2009.

During May 2009 Britain's personal debt increased by ~ £1 million every 77 minutes. In January 2008 Britain's personal debt increased by ~ £1 million every 5.3 minutes.

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HOLA4414
During May 2009 Britain's personal debt increased by ~ £1 million every 77 minutes. In January 2008 Britain's personal debt increased by ~ £1 million every 5.3 minutes.

so the rate of the rate of increase of savings (aka the negative rate of the rate of increase of debt) is positive! looking rosy then...

Edited by Si1
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HOLA4415
http://www.creditaction.org.uk/july-2009.html

Debt Statistics / July 2009

Total UK personal debt

Total UK personal debt at the end of May 2009 stood at £1,459bn. This has slowed further to 1.4% in the last 12 months which equates to an increase of ~ £17.9bn (the increase was ~£116bn in January 2008).

Total secured lending on dwellings at the end of May 2009 stood at £1,226bn. This has slowed further by 0.2% to 1.3% in the last 12 months.

Total consumer credit lending to individuals at the end of May 2009 was £233bn. This has continued to fall to 2.3% in the last 12 months.

Total lending in May 2009 grew by £0.6bn; secured lending grew by £0.3bn in the month; consumer credit lending grew by £0.3bn (total lending in January 2008 grew by £8.4bn).

Average household debt in the UK is ~ £9,305 (excluding mortgages). This figure increases to £21,640 if the average is based on the number of households who actually have some form of unsecured loan.

Average household debt in the UK is ~ £58,360 (including mortgages).

If you add to this the 2009 budget figure for public sector net debt (PSND) expected in 2013-14 then this figure rises to £116,200 per household.

Average owed by every UK adult is ~ £30,480 (including mortgages). This is 132% of average earnings.

Average outstanding mortgage for the 11.1m households who currently have mortgages now stands at ~ £110,480.

Britain's interest repayments on personal debt were £66.2bn in the last 12months. The average interest paid by each household on their total debt is approximately £2,650 each year.

Average consumer borrowing via credit cards, motor and retail finance deals, overdrafts and unsecured personal loans has risen to £4,860 per average UK adult at the end of May 2009.

During May 2009 Britain's personal debt increased by ~ £1 million every 77 minutes. In January 2008 Britain's personal debt increased by ~ £1 million every 5.3 minutes.

Nice to see some statistics, thanks ;)

Doesn't look too bad - a decade of saving 15% of income and higher taxes would get that down to a manageable level :lol:

Not too many expensice holidays and new cars in that equation then...

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HOLA4416

Proportion of adults who pay off the full amount of their credit card bill

2004 : 17%

2008 : 33%

(source British Market Research Bureau Target Group Index Survey)

The increase is broadly consistent across demographic groups, however the wealthiest groups of the population show a smaller increase than the population as a whole - although they started from a position of being over twice as likely to pay off their card in 2004.

No idea what this means in macro-economic terms. ( My field is concerned with who within the population rather than the overall state of the economy. )

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HOLA4418
The lenders knew this would coming and have done hardly anything to limt the timebomb, bad debters have just been allowed to keep useing their cards.

I have had the credit limit reduced on a couple of dormant credit card accounts (Lloyds) but I also got an Amex Platinum card last month and blew the entire £7,500 limit on ebay in a month. (on shiny yellow stuff with 5% cashback on the card, 2% cashback on Linemypockets and 1% cashback from ebay so I'm not the typical cc junkie)

Nevertherless I could be about to declare myself bankrupt or emigrate to Pakistan for all they know.

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HOLA4419

I think this is more important than another "banksters" rant. These families did what they did out of their own foolishness and don't deserve anyones sympathy. The money they spend largely went to the supplier - forget the credit card for now - and so back into their own pockets ........ if only the goods had been sourced domestically. Of course they weren't because everyone was too busy gorging on the cheap import extravaganza.

The banks thing is a different matter; wanton greed and laziness lie at the heart of these peoples problems and the population has to learn responsibility for their own actions. They'll have to pay.

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HOLA4420
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HOLA4421
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HOLA4422
Yes

Thanks for the figures

But debt is still increasing and is getting worse by the hour albeit at a slower pace.

What happens when debt levels go negative? as at some stage they must.

Unless and until the way of life becomes such that debt is wiped out, life on this earth will be miserable for more and more of its inhabitants.

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