Currencies

Renminbi strengthens further despite gains by dollar

The renminbi on track for a fourth day of firming against the dollar on Wednesday after China’s central bank once again pushed the currency’s trading band (marginally) stronger. The onshore exchange rate (CNY) for the reniminbi was 0.28 per cent stronger at Rmb6.8855 in afternoon trade, bringing it 0.53 per cent firmer since it last […]

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Financial

Sales in Rocket Internet’s portfolio companies rise 30%

Revenues at Rocket Internet rose strongly at its portfolio companies in the first nine months of the year as the German tech group said it was making strides on the “path towards profitability”. Sales at its main companies increased 30.6 per cent to €1.58bn while losses narrowed. Rocket said the adjusted margin for earnings before […]

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Property

Spanish construction rebuilds after market collapse

Property developer Olivier Crambade founded Therus Invest in Madrid in 2004 to build offices and retail space. For five years business went quite well, and Therus developed and sold more than €300m of properties. Then Spain’s economy imploded, taking property with it, and Mr Crambade spent six years tending to Dhamma Energy, a solar energy […]

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Currencies

Nomura rounds up markets’ biggest misses in 2016

Forecasting markets a year in advance is never easy, but with “year-ahead investment themes” season well underway, Nomura has provided a handy reminder of quite how difficult it is, with an overview of markets’ biggest hits and misses (OK, mostly misses) from the start of 2016. The biggest miss among analysts, according to Nomura’s Sam […]

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Banks

RBS falls 2% after failing BoE stress test

Royal Bank of Scotland shares have slipped 2 per cent in early trading this morning, after the state-controlled lender emerged as the biggest loser in the Bank of England’s latest round of annual stress tests. The lender has now given regulators a plan to bulk up its capital levels by cutting costs and selling assets, […]

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Categorized | Banks, Financial

US $18bn credit card spree sparks fears


Posted on July 31, 2016

credit card chip©Dreamstime

US banks have ramped up lending to consumers through credit cards and overdrafts at the fastest pace since 2007, triggering concerns that they are taking on too much risk in a slowing economy.

The industry has piled on about $18bn of card loans and other types of revolving credit within just three months, as consumers borrow more and banks battle for customers with air miles, cashback deals and other offers.

    The surge in lending has come as economists expect the US election to create sufficient uncertainty to impede growth for the rest of the year, increasing the stakes for lenders at a time when the credit cycle appears to have passed a peak.

    Recently disclosed second-quarter results showed that credit card loans increased 10 per cent year-on-year at Wells Fargo, 12 per cent at Citigroup and 16 per cent at US Bank, according to Deutsche Bank research. Expansion was an especially aggressive 26 per cent at SunTrust, the $200bn Atlanta-based lender.

    Across the US banking industry, credit card and other revolving loans rose at a seasonally adjusted annual rate of 7.6 per cent in the second quarter to $685bn, according to Federal Reserve data.

    The credit card business remains among the most profitable in banking. Lenders can charge much higher interest rates — the US average is between 12 and 14 per cent — than for other types of credit, and borrower delinquencies are still low by historical standards.

    However, there are some early indications that the cycle is beginning to turn.

    “In the present environment it’s probably a safe strategy, but as we saw with housing in 07/08 that environment can change very rapidly,” said Nancy Bush, banking analyst at Georgia-based NAB Research. “They need to be very careful.”

    Bob Hammer, the veteran credit-card consultant, said: “Times are pretty good right now, but it’s questionable how long it’s going to last”.

    Synchrony Financial, the largest supplier of store-branded cards in the US, sent a shudder through the sector in June when it increased its forecast for credit losses.

    Several banks have since disclosed that they have boosted reserves for losses, although executives said this largely reflected expansion of their businesses rather than a deterioration in credit quality.

    Capital One added $375m to its loan loss reserve for its domestic card business, according to Barclays, while
    JPMorgan Chase added a $250m loss allowance for its credit-card portfolio.

    The largest US bank by assets has expanded in the past two or three years into what Marianne Lake, JPMorgan Chase chief financial officer, described as the “near prime space” — in essence, customers with lower credit scores.

    Executives say that the lending push is justified as the consumers they target are in good financial shape, pointing to rising house prices and low unemployment.

    “We’re growing our direct consumer lending portfolio at a very rapid pace,” said William Rogers, chairman and chief executive of SunTrust. “That is indeed helping to mitigate the effect of [pressure on profit margins] overall.”