Credit-card shares were among the top decliners in the financial sector Thursday after Capital One Financial Corp. lowered its earnings outlook and raised its loan loss reserves, with increasing clarity that the credit crisis sparked by careless home lending has spread to the consumer sector.
As delinquencies on subprime mortgages surged this year, there were initially few signs that similar problems were leaking into the credit-card industry. However, that changed in recent weeks as evidence, like Thursday’s news from Capital One, shows that consumers loaded up on credit-card debt to make up for a loss in the purchasing power they once wielded by refinancing mortgages during the real-estate boom.
“Today’s announcement by Capital One is really the first shoe to have dropped,” said Celent analyst Red Gillen. “The wait is now on for the other shoe. We are now in the holiday-season hangover period, when consumers typically face larger than average credit-card bills. Given the economy’s flirtation with recession, consumers’ ability to repay these inflated bills is under more pressure than in previous years.”
[More at MarketWatch]
Photo by Taberandrew
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