As shady as that sounds, it's smart. They should have started doing that 1-2 years ago. This is why:
"American Express, Capital One Profits May Plummet on Bad Loans
http://www.bloomberg.com/apps/news?pid=20601103&sid=awQORK_DSITE&refer=news
Jan. 22 (Bloomberg) -- American Express Co., the biggest U.S. credit-card company by purchases, and rival Capital One Financial Corp. may report that fourth-quarter profit declined as job losses caused more consumers to fall behind on payments.
Earnings from continuing operations at New York-based American Express probably plunged 73 percent to $227.7 million, according to 14 analysts surveyed by Bloomberg. Capital One, the McLean, Virginia-based lender reporting results later today, may say that profit fell 23 percent to $172.8 million.
American Express results are under “severe pressure” because of “accelerating credit and charge losses” Richard Shane, an analyst at Jefferies & Co. in San Francisco, said yesterday in a research note. Capital One has “no relief in sight” from rising losses, he said.
Consumers are struggling to pay their bills as the U.S. recession deepens, resulting in surging losses for American Express and Capital One. The two firms had to seek about $7 billion from the Treasury last year to ensure their survival. Unemployment climbed to 7.2 percent in December, the highest level in almost 16 years, and companies slashed payrolls by almost 2.6 million in 2008, according to the Labor Department.
Credit-card losses are “poised to get ugly” for American Express, said Shane, who boosted his estimate for charge offs this year to 9 percent from 7.9 percent. Growth in spending will rise 2 percent, compared with his previous 8 percent estimate. American Express reports fourth-quarter results Jan. 26.
American Express rose $1.27, or 8.1 percent, to $16.87 yesterday in New York trading, and has declined 61 percent in the past year. Capital One rose 4 cents to $22.96 yesterday and lost about 42 percent in a year.
Record Defaults
Defaults will probably set records this year as more delinquent accounts are turning into losses for credit-card companies, Fitch Ratings said in a November report.
Lenders are closing unused accounts and scaling back credit lines to insulate against further losses as the Federal Reserve approved rules last month to curtail interest-rate increases on current balances.
Card issuers, along with securities firms including Goldman Sachs Group Inc., insurers like Hartford Financial Services Group Inc. and commercial lender CIT Group Inc., sought status as bank holding companies to tap the government’s rescue fund.
American Express will get $3.39 billion, Capital One has preliminary approval for $3.6 billion and Discover Financial Services asked for $1.2 billion. Discover, based in Riverwoods, Illinois, was awarded bank holding company status last month.
Discover, a lender that also runs the fourth-largest credit- card network, said fiscal fourth-quarter profit more than doubled to $444 million after a settlement with rivals MasterCard Inc. and Visa Inc. The company agreed in October to accept $2.75 billion to resolve an antitrust case it brought against the world’s largest credit-card networks.
The company boosted its provision for loan losses by 89 percent, or $521 million. Loans overdue by 30 days or more rose to 4.56 percent, from 3.59 percent a year earlier.
To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net
Last Updated: January 22, 2009 00:00 EST "
