THE ROT SPREADS

It's not just the Big ShitPile that's in trouble, even well-heeled consumers are hurting. Here's the problem, according to MarketWatch: "consumers had loaded up on credit-card debt to make up for a loss in the purchasing power formerly afforded by refinancing mortgages during the housing boom years."


Bank earnings to be hit as mortgage woes spread
Provisions seen rising as more consumer loans go bad, denting capital
By Alistair Barr, MarketWatch
Last update: 7:01 p.m. EST Jan. 11, 2008

Mortgage woes are spreading to other types of loans as the economy weakens and unemployment rises, producing a secondary pressure trend hitting bank earnings, experts said this week, ahead of closely watched results due soon from industry giants...

Higher provisions to cover rising losses on consumer loans will likely eat into bank profits in the fourth quarter and beyond. That may squeeze the capital cushions of some banks that already have taken write-downs in the tens of billions of dollars because of exposure to mortgage-related securities.

"The story of this quarter is consumer loans," said Zach Gast, an analyst at The Center for Financial Research and Analysis, a unit of RiskMetrics Group.

Until the middle of last year, consumer loan losses were held in check as house prices climbed, allowing borrowers refinance mortgages or take out home-equity loans and use the cash to pay off credit card bills and auto loans. But as the subprime-fueled credit crisis erupted in August, such activity ground to a halt.

...credit card and auto loan delinquencies have begun to rise and will probably deteriorate further, Gast said. American Express hares slumped more than 10% on Friday after the credit-card giant said it was forced to record a $440 million, fourth-quarter charge to cover the cost of increased delinquencies and loan write-offs.

Capital One another big credit card company, slashed its profit forecast on Thursday for similar reasons.