Credit Cards: a Huge Bubble in the US Credit Market(Short COF)

As part of efforts to reduce default risk, Discover Financial (DFS) and Capital One (COF) will close customer accounts that have not been used for lengthy periods of time. Discover is planning to close up to 2M more accounts than the 3M "inactives" already closed, while Capital One says it has "very aggressively" closed inactive accounts.
 
"Economic deterioration intensified during the fourth quarter, driving increasing delinquency and charge-off rates across all of our lending businesses. The fourth quarter charge-off rate in the U.S. Card business was 7.08%, in line with the expectations conveyed last quarter. The company now expects that the U.S. Card charge-off rate for the first quarter of 2009 will be around 8.1%, rather than the mid 7% range previously communicated. The change in outlook is primarily the result of declining balances and adverse credit performance of closed-end, unsecured loans that are included in the U.S. Card subsegment. Auto Finance delinquencies and charge-off rates increased in the quarter as a result of seasonality, economic worsening, declining loan balances, and the impact of sharply falling used car auction prices."

wow, these guys are screwed
 
Congrats on a nice call Daal. I've been riding this turkey down for awhile as well. What are your thoughts going forward? Is COF headed the way of Wachovia and WM?

I know Soros liked to add to his shorts as they went down in order to keep the same amount of exposure.
 
Congratulations Daal

http://www.calculatedriskblog.com/2009/01/cof-strikingly-high-fico-customers.html

These closed in loans in fact were to pretty darn strikingly high FICO customers, basically super prime customers by profile, but they certainly have a degraded a lot more quickly than the overall super prime sort of equivalent super prime credit card customer. You know, they tend to be -- a couple of things about the boom and bust market that we have seen both they tend to perform -- they are performing worse in the boom and bust market we can see that than the credit cards, and they have a higher concentration in boom and bust markets as well. ...

****************

Stocks to watch:

COF AXP DFS C
 
I hope I was able to make somebody some money
American Express Falls as Credit-Card Defaults Worsen
http://www.bloomberg.com/apps/news?pid=20601087&sid=agrvfNKOnEIY&refer=home

“The expectation was it wasn’t going to get this bad this fast, but it’s getting pretty bad, pretty quickly,” said John Williams, an analyst at Macquarie Capital in New York

I didnt say on the original thread but I dont think COF(the common stock) survives without a big bailout
 
Great call Daal. COF has noticeably underperformed other financials since 23 January (earnings date).

New 52 week lows today for AXP and DFS as well.

Quote from Daal:

I hope I was able to make somebody some money
American Express Falls as Credit-Card Defaults Worsen
http://www.bloomberg.com/apps/news?pid=20601087&sid=agrvfNKOnEIY&refer=home

“The expectation was it wasn’t going to get this bad this fast, but it’s getting pretty bad, pretty quickly,” said John Williams, an analyst at Macquarie Capital in New York

I didnt say on the original thread but I dont think COF(the common stock) survives without a big bailout
More...
 
The obvious stocks are AXP, COF and DFS.

For those willing to be a little cheeky, some of the big banks could be credit card plays - in particular C, BAC and JPM.

http://money.cnn.com/2008/10/29/news/economy/creditcard_bailout.ap/index.htm?postversion=2008102921

Five big financial companies - Discover Financial Services LLC (DFS), Bank of America Corp. (BAC, Fortune 500), Citigroup Inc., (C, Fortune 500) JPMorgan Chase & Co. (JPM, Fortune 500) and Capital One Financial Corp. (COF, Fortune 500) - issue around 80 percent of all U.S. credit cards.

Quote from Cutten:

Credit card companies are dead. I approve this short pick, but would rather have a spread of CC shorts to reduce risk.
More...
 
Personally I would be wary of shorting thse as they are Government interferference candidates.

Was short COF, AXP and DFS when Bernanke wet his pants and applied free market 75BP cuts, then TARP etc, same with oil, was short oil and then Bernanke bailed out GS and MS the two largest players in the oil market via the free market opening of the Fed's credit lines to them.
 
You must log in or register to reply here.
Back
Top