IMGCAP(1)]
If the unemployment rate soars as high as 12% next year, credit card issuers' profitability would be tested, but most issuers would survive, according to an industry status report New York-based securities investment firm Keefe, Bruyette & Woods published today. "Large card issuers could withstand a 12% unemployment rate, which would mean significantly higher charge-offs. But anything above that could cause serious liquidity and capital problems," Sanjay Sakhrani, the report's author, tells CardLine. He notes that if a recovery begins early next year, unemployment might not reach 12%. And if the economic crisis continues to worsen past next year, unemployment could rise higher than 12%. The report predicts American Express Co. will report a first-quarter charge-off rate of about 8.7%, rising to 13.2% during the fourth quarter. Capital One Financial Corp.'s first-quarter charge-off rate will rise to 8%, reaching 11.9% by the fourth quarter, and Discover Financial Services, which recently reported a first-quarter charge-off rate of 6.5%, may see the rate reach 11.2% by the fourth quarter, the report predicts. Visa Inc. and MasterCard Inc. are relatively well positioned to ride out the downturn, but Visa has a slight advantage because of its higher proportion of debit cards, Sakhrani says. "Credit volume is down, but debit card usage continues to grow, and Visa has greater weight in debit." he says. MasterCard's higher ratio of credit cards has hurt its overall card market share relative to Visa's, as many issuers have closed inactive credit card accounts in recent months, Sakhrani notes. MasterCard's overall number of credit card accounts fell 3.4%, to 226 million at the end of December from 234 million a year earlier. Visa's total credit accounts rose 5.1% for the quarter ended Sept. 30, 2008 to 266 million from 253 million a year earlier. Visa has not yet reported its fourth-quarter card data. "MasterCard is a step behind Visa at this point. The company needs to branch out into other areas and attack debit in the U.S.," Sakhrani says.
