As the economy continues to slow, credit card issuers are expected to start feeling pain. A recent note from Fitch Ratings warns that credit card defaults are expected to rise as the economy sags. Some of this is the economy, of course, but some of it may stem from a loosening of credit cards standards not unlike subprime. Indeed back when subprime was still just a tiny banking product, credit card issuers were welcoming students, with little or no credit history and often no employment, and then consumers with blemished credit histories. By widening the pool, defaults would naturally rise. In the early part of the decade, the credit card issuers lobbied for changes in the personal bankruptcy laws -- perhaps not coincidentally about the same time the subprime era really got rolling.
Armed with the bankruptcy reform law that makes it difficult for credit card borrowers to shirk their debts, credit card M&A boomed. J.P. Morgan wasted no time devouring Bank One, among many other things a leading credit card issuer. The merger helped make J.P. Morgan the largest credit card issuer in the country -- until Bank of America Corp. purchased MBNA.
So if J.P. Morgan has a problematic credit card portfolio, why would it purchase the likes of SunTrust Banks Inc., Washington Mutual Inc. or even Wachovia Corp. as widely speculated in the blogosphere and mainstream media? That would just be adding trouble to trouble, unless of course the price was Bear Stearns Cos.-like low. - Matthew Wurtzel
See story about credit card troubles from Dow Jones via CNNmoney
See story about J.P. Morgan's targets from the New York Post
See Dealscape: Carnac says Wachovia and J.P. Morgan
While J.P. Morgan Chase & Co.'s purchase of Bank One may have saved it from jumping on the subprime bandwagon, that deal may eventually offset a different ripple of distress at the big bank: credit card debt.
