Declining consumer credit quality has been the talk of Wall Street lately.

"When I see clients the first thing I address is credit card and consumer, because they're reading it in the paper," says Gregg R. Novek, a senior vice president at Thomson Bankwatch.

But Mr. Novek and other analysts say the concerns, sparked by rising bankruptcies, surging consumer debt, and an uptick in credit card delinquencies, may be overblown.

"This is not an LDC- or real estate-type crisis," said George Salem of Gerard Klauer Mattison & Co. "It's an earnings squeeze." His initial reference was to credit crises that have wracked the banking industry in the recent past.

Banks have the capital to absorb losses, analysts say. They argue that credit card pricing is generous enough to offset the risk and that credit scoring technology will help the larger banks and credit card specialty companies to minimize bad loans.

Mr. Salem, although predicting credit card loans will be the most troubled loan category this year and next - and recommending "increased skepticism" about earnings as a result - has not changed his ratings or earnings estimates on the big banks he follows.

Indeed, he recently restored a "buy" rating to Chase Manhattan Corp., saying its bank card credit quality is "better than we believed."

Similarly, debt rating agencies are watching the situation closely but have seen no need to downgrade bank debt.

"We don't expect that banks will become unprofitable, unless the (credit card losses) go much higher," said Alison Emmerich, a bank and credit card analyst at Standard & Poor's.

Should the economy slip into recession, a sharp increase in losses could trigger some downgradings, she said, but "as of now we're not prepared to predict that."

The concerns have been brewing for several years.

Consumer installment credit grew 14.6% in 1994 and 13.5% in 1995, reaching the $1 trillion level last October, analysts at Dain Bosworth Inc. noted in a report in May.

Growth in credit card balances accounted for much of those increases, as banks and credit card specialists fought for consumer loyalty with low introductory rates and higher credit limits, the Dain Bosworth analysts wrote.

As consumer indebtedness rose, so did personal bankruptcy filings. Bankruptcies surged 12%, to 875,000, in 1995 and now account for 40% to 50% of credit card losses, Mr. Salem estimated.

Moody's Investors Service noted a 21% increase in chargeoffs, to 4.45% of pools of securitized credit card loans, from December 1994 to December 1995. And Ms. Emmerich at S&P estimated that chargeoffs are now running at 5% to 6% - a recessionary level. "Our fear is, we're not in a recession yet: What if they go higher?"

Worries came to a head June 20, when Bank of New York Co. announced it would take a $350 million special provision to cover anticipated credit card losses.

The move appeared to revive investors' memories of the big writeoffs of real estate debt by New England bank companies in 1990 that sent bank stocks into a tailspin.

The S&P Bank Index dropped 1.32% after the Bank of New York announcement, on a day when the Dow Jones industrial average was up slightly. But after two weak trading sessions, the index recovered its upward momentum.

Consumer credit quality, meanwhile, became the topic of the hour for stock and bond analysts.

Investors "are paying closer attention and beginning to ask more pertinent questions about issuer strategy, underwriting strategy, and performance-monitoring ability," said Moody's analyst Edward Bancole, who tracks credit card-backed securities.

"The increasing focus on consumer loan losses is warranted," analysts from Montgomery Securities wrote in a June 24 report.

"Consumer loan losses now account for 71% of total loan losses, compared to a more modest 27% just four years ago," the Montgomery report noted. "This considerable increase reflects three factors: Commercial and real estate loan loss rates have fallen sharply; credit card loan growth has been high in recent years; ... and consumer loans in general have begun to show significant deterioration."

Montgomery said loan losses on credit cards would continue to rise through the middle of next year. But its report added: "We remain comfortable with our 1996 and 1997 earnings estimates."

Even if loan losses rise 100 basis points more than projected, the Montgomery analysts estimated that the most vulnerable bank company, Citicorp, would suffer only a 10% reduction in earnings per share. Earnings would be reduced 8% at First Chicago NBD Corp. and 5% at Banc One and Wachovia, they said.

Montgomery said banks are better capitalized and more profitable than in the early 1990s and therefore in a better position to absorb losses. "In fact," the analysts wrote, "total loan losses could double from the 1995 level and still account for only 28% of pretax, preprovision income, compared to 55% in 1991."

In a June report, Mr. Salem pointed out that banks, which in the early 1990s found themselves forced to write off 75% of the value of huge real estate loans, are positioned to increase the average yields on credit card loans by simply discontinuing teaser rates and increasing penalty fees for late payments.

"We do see evidence that banks are doing one of the things I recommended, which is to stop adding to the garbage pile," Mr. Salem said in a recent interview.

In testimony to Congress in August, Mr. Bancole and fellow Moody's analysts David Fanger and Michael R. Foley concluded that the deterioration of consumer credit quality would have no long-term impact on banks.

Mr. Fanger said in an interview that the agency's bank ratings already reflected the expectation that credit costs would rise. Moody's has seen nothing in the recent trends to warrant rating adjustments, he said.

The rating on a card-backed issue by Mercantile Bancorp., St. Louis, was placed on watch for a possible downgrading last year, after the credit quality in that pool of loans deteriorated sharply. But the bank has taken corrective action, and the rating was reaffirmed, the analysts said.

Standard & Poor's has removed credit card specialist First USA Inc. from positive credit watch because the rise in consumer loan problems reduced the likelihood of an upgrading, Ms. Emmerich said. But she said the consumer debt crisis has not prompted S&P to reduce ratings on any issuer.

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