Why Banks Have Become Schizophrenic
Its an understatement to say these are difficult times for banks. Between the mortgage collapse, the Treasury recapitalization, and the recession, they are trying to do business — and that that involves some risk. But doing so without losing too much money involves doing less business.
They have become utterly schizophrenic. Whether its the TARP or the credit crisis or deleveraging or something else entirely, I cannot tell you. But damn, these guys have gotten weird.
Back in August, we noted that numerous banks and brokers were sending nastygrams to their HELOC clients telling them "Too Late!" Unused portions of equity lines were being withdrawn.
Our own Citibank HELOC, which was about half unused, was withdrawn 2 months ago. Yesterday, we received a letter offering us a new HELOC from Citi — for the same amount that was withdrawn in August.
Our Visa via JPM/Chase went through the same process. A short while ago, I had a month of extensive business travel expenses. Before we even got the bill (which was paid off in full) came a sort-of-odd, borderline rude letter about our (high) credit use. It was "Thanks for the business, but please use credit responsibly, ya deadbeat."
It was a strange letter. Any review of the charges could see it wasn’t frivolous, but were all business T&E. My solution was to switch to an Amex card, and not use the Visa for business expenses. That was September, and last week, we got a JPM letter — We want your business! We are raising our credit limit on the Visa.
WTF?
I understand the fear that firms have when they are lending these days. As the NYTimes writes this morning (Consumers Feel the Next Crisis: Credit Cards), another credit crisis is on the horizon. But you guys better get a more coordinated message. You are confusing and self contradictory — and its easy to see how you could alienate some, less understanding clients.
NY Times Ubiq-cerpt:™
"First came the mortgage crisis. Now comes the credit card crisis.
After years of flooding Americans with credit card offers and sky-high credit lines, lenders are sharply curtailing both, just as an eroding economy squeezes consumers.
The pullback is affecting even creditworthy consumers and threatens an already beleaguered banking industry with another wave of heavy losses after an era in which it reaped near record gains from the business of easy credit that it helped create.
Lenders wrote off an estimated $21 billion in bad credit card loans in the first half of 2008 as more borrowers defaulted on their payments. With companies laying off tens of thousands of workers, the industry stands to lose at least another $55 billion over the next year and a half, analysts say. Currently, the total losses amount to 5.5 percent of credit card debt outstanding, and could surpass the 7.9 percent level reached after the technology bubble burst in 2001."
The mortgage collapse has changed my sense of what is a lot of money. $21 billion? That’s chump change…
>>
graphic courtesy of NYT
>
Previously:
Morgan Stanley HELOCs: Don’t Delay, Act Now! (August 06, 2008)
http://bigpicture.typepad.com/comments/2008/08/morgan-stanley.html
Source:
Consumers Feel the Next Crisis: Credit Cards
ERIC DASH
NYT, October 28, 2008
http://www.nytimes.com/2008/10/29/business/29credit.html
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October 29th, 2008 at 7:27 am
The credit card was one of the first worst ideas foisted on people and created the slippery slope that ended with derivatives, ARMs etc. and the result is what we have today – global economic chaos.
October 29th, 2008 at 7:46 am
Personally, I think AMEX is the way to go, their Customer Service, for me, has always been top-notch and very pleasant to deal with. Visa’s, even with their AMEX-imitation ‘Signature’ Card, Customer Service, through any ‘bank’ that I’ve experienced, bites.
http://www.thefreedictionary.com/notwithstanding
October 29th, 2008 at 7:50 am
I have decided that what we need is the final program from the Treasury to halt the economic decline. Let’s call it Bruce in Tennessee’s Market Share Buy Back Program.
Instead of buying back shares like many established companies do from time to time, this time Hank gives money to a company for share buy backs to increase investor confidence in said company.
Company ABC announces to the world that a stock buy back program has been initiated. HOWEVER, this will work like a stop. ABC announces that we will only use the buy back plan to buy when the price falls to, say, 16 bucks. Establishes a floor, investors know the treasury has ABC’s back, and we all go home happy and fat.
Probably would only cost a googleplex of money, therefore should make Hank happy.
Now back to our regularly scheduled depressing economic news..
October 29th, 2008 at 7:55 am
AmEx – the provider of those 2 horrible commercials
at airport check in, not AmEx goldcard, call for a body cavity search
at restaurant with spiderman card and the Germans laugh
more business side – didn’t they cut 50% credit lines about a month ago with a dear Joe letter?
How about US Bank – a heartland bank
I asked Mayor Dailey for a Chicago region powerhouse for my interest payments to support; and the heartland developement
ps – PNC bad move with my National
October 29th, 2008 at 8:06 am
A month ago the feds weren’t guaranteeing anything. Now that they have new play money, they can smile again!
October 29th, 2008 at 8:08 am
There was a hilarious thread in Ferrari Chat under investments where people were railing on Amex cutting their Centurian(Black Card) lines in half or worse. A good read!
October 29th, 2008 at 8:11 am
It’s all in the eye of the beholder, you didn’t think the charges were frivolous but maybe anything above a Motel 6 was red flagged.
October 29th, 2008 at 8:13 am
Banks should give you tons of credit if you can pay it back and they can make money on you. It’s your own responsibility to make sure you don’t use more than you can afford.
One who is good with their debt will not use more than they can afford. That’s why they have a good credit rating.
October 29th, 2008 at 8:20 am
I got a Chase Continental card last year because they waived the annual fee and gave me 20,000 free miles. When it renews next month, I’m going to ask them to waive it again or close the account. It will be interesting to see what happens.
October 29th, 2008 at 8:22 am
We are bailing out the banks so that the same people who drove us into this mess can now drive us out. I think you are seeing that in person.
I don’t think it is a wise course to follow. I also think reality trumps government in the end.
October 29th, 2008 at 8:23 am
I concur on the AMEX having good customer service. It has been a real pleasure to use this card for business.
I have my own schizo-story. Citibank cancelled my card with a letter explaining how I was not using it it so they were “sorry it was not meeting my needs.” Then a week later I get a letter asking me to open a checking account, with “special terms” because I am a card member in good standing!
October 29th, 2008 at 8:29 am
I recently got offered a Discover Card. No interest on any purchases for 10 months. I signed up. $15K credit limit. I got a call from them a few days later saying, “we see you are self-employed, would you like a business card, too”. No interest for 12 months on all purchases. I said that sounded great and signed up for that as well. I’ve got the money in a CD making 4%.
I wouldn’t think handing out business cards to people who are “self employed” is a great move. But I guess my high FICO is enough.
October 29th, 2008 at 8:33 am
Hmmm cutting the rate below 0 again XA XA XA only our domestic IDIOTS can step in the same pile of shit not once but twice. This country is done!!!
October 29th, 2008 at 8:37 am
Bruce in Tenn: don’t make the sams mistake the government is making:
the decline of the economy and the decline of the stock market are two different things…
October 29th, 2008 at 8:38 am
My local community bank just sent me a letter offering me a $100,000.00 HELOC. Then, they made a personal follow-up call, which I was not home to take, otherwise I think I might have laughed at the woman. We are debt-free, thank you very much, and plan to stay that way!
October 29th, 2008 at 8:39 am
Arbitrage anyone…LOL! The vultures are circling about now. Let’s see, I can borrow thru a facility at less than 3%, and buy into 18% which ain’t a bad return on an arbitrage play especially if I lever up with taxpyer money…oh never mind.
Remember, the storyline goes that we are lending this money out…wink…wink, but Hell I ain’t turning down the arb when I would have to loan it to a broke ass Joe Six Pack when I can kick ass playing the arb and saving my own ass with the IMF backstopping me. Shitfire, life is good.
October 29th, 2008 at 8:40 am
Barry, I can’t believe my eyes-do you really have a home equity loan? And, you’re giving financial advise. I’m reminded of what Warren Buffet said about Wall Street being the place people drive Rolls Royce to to get advice from people that take the subway to work.
October 29th, 2008 at 8:44 am
way to go 12th
when you reap that reward, invest in America please. cause thats where this supply sider to your benny lives.
no problem with capitalism that recycles properly
October 29th, 2008 at 8:47 am
It’s all contained, I swear:
October 28, 2008
Federal Reserve and Reserve Bank of New Zealand announce the establishment of a temporary reciprocal currency arrangement
October 22, 2008
Federal Reserve announces it will alter the formula used to determine the interest rate paid to depository institutions on excess balances
October 21, 2008
Federal Reserve announces results of auction of $150 billion in 28-day credit held on October 20, 2008
October 21, 2008
Federal Reserve announces the creation of the Money Market Investor Funding Facility (MMIFF)
October 20, 2008
Federal Reserve will offer $150 billion in 28-day credit through its Term Auction Facility today
October 14, 2008
FOMC authorizes an increase in the size of its temporary reciprocal currency arrangement with the Bank of Japan
October 14, 2008
Minutes of Board discount rate meetings, August 18 through September 15, 2008
October 14, 2008
Board announces additional details regarding the Commercial Paper Funding Facility (CPFF)
October 14, 2008
Joint statement by Federal Reserve, U.S. Department of the Treasury, and Federal Deposit Insurance Corporation (FDIC)
October 13, 2008
Federal Reserve and other central banks announce further measures to provide broad access to liquidity and funding to financial institutions
October 8, 2008
Approval of the discount rate action of the Federal Reserve Banks of New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, Minneapolis, Kansas City, Dallas, San Francisco, and St. Louis
October 8, 2008
Federal Reserve and other central banks announce reductions in policy interest rates
October 7, 2008
Minutes of Federal Open Market Committee, September 16, 2008
October 7, 2008
Federal Reserve announces results of auction of $150 billion in 85-day credit held on October 6, 2008
October 7, 2008
Board announces creation of the Commercial Paper Funding Facility (CPFF) to help provide liquidity to term funding markets
October 7, 2008
Federal Reserve and other central banks announce schedules for term and forward auctions of U.S. dollar liquidity for fourth quarter
October 6, 2008
Federal Reserve will offer $150 billion in 85-day credit through its Term Auction Facility today
October 6, 2008
Board announces that it will begin to pay interest on depository institutions’ required and excess reserve balances
September 29, 2008
Federal Reserve Ready to Provide Liquidity in Wachovia Transition
September 29, 2008
Federal Reserve and other central banks announce further coordinated actions to expand significantly the capacity to provide U.S. dollar liquidity
September 26, 2008
Federal Reserve and other central banks announce operations to address funding pressures over quarter end
September 24, 2008
Federal Reserve and other central banks announce additional measures to address elevated pressures in funding markets
September 23, 2008
Federal Reserve announces results of auction of $75 billion in 28-day credit held on September 22, 2008
September 22, 2008
Federal Reserve will offer $75 billion in 28-day credit through its Term Auction Facility today
September 21, 2008
Board approves, pending a statutory five-day antitrust waiting period, the applications of Goldman Sachs and Morgan Stanley to become bank holding companies and also authorizes the Federal Reserve Bank of New York to extend credit to the London-based broker-dealer subsidiaries of Goldman Sachs, Morgan Stanley, and Merrill Lynch
September 19, 2008
Board approves two interim final rules in connection with initiative to provide liquidity to markets by extending loans to banking organizations to finance their purchases of high-quality asset-backed commercial paper (ABCP) from money market mutual funds
September 19, 2008
Federal Reserve Board announces two enhancements to its programs to provide liquidity to markets
September 18, 2008
Federal Reserve and other central banks announce further measures to address elevated pressures in funding markets
September 16, 2008
FOMC statement
September 14, 2008
Federal Reserve Board announces several initiatives to provide additional support to financial markets, including enhancements to its existing liquidity facilities
September 10, 2008
Federal Reserve announces results of auction of $25 billion in 28-day credit held on September 9, 2008
September 9, 2008
Federal Reserve will offer $25 billion in 28-day credit through its Term Auction Facility today
September 9, 2008
Federal Reserve announces results of auction of $25 billion in 84-day credit held on September 8, 2008
September 8, 2008
Federal Reserve will offer $25 billion in 84-day credit through its Term Auction Facility today
September 2, 2008
Minutes of Board discount rate meetings, July 7 through August 4, 2008
August 26, 2008
Minutes of Federal Open Market Committee, July 24 and August 5, 2008
August 26, 2008
Federal Reserve announces results of auction of $75 billion in 28-day credit held on August 25, 2008
August 25, 2008
Federal Reserve will offer $75 billion in 28-day credit through its Term Auction Facility today
August 13, 2008
Federal Reserve announces results of auction of $50 billion in 28-day credit held on August 12, 2008
August 12, 2008
Federal Reserve will offer $50 billion in 28-day credit through its Term Auction Facility today
August 12, 2008
Federal Reserve announces results of auction of $25 billion in 84-day credit held on August 11, 2008
August 11, 2008
Federal Reserve will offer $25 billion in 84-day credit through its Term Auction Facility today
August 5, 2008
FOMC statement
July 30, 2008
Federal Reserve announces steps to enhance the effectiveness of its existing liquidity facilities
July 29, 2008
Federal Reserve announces results of auction of $75 billion in 28-day credit held on July 28, 2008
July 28, 2008
Federal Reserve will offer $75 billion in 28-day credit through its Term Auction Facility today
July 22, 2008
Minutes of Board discount rate meetings, May 19 through June 23, 2008
July 16, 2008
Minutes of Federal Open Market Committee, June 24-25, 2008
July 15, 2008
Federal Reserve announces results of auction of $75 billion in 28-day credit held on July 14, 2008
July 14, 2008
Federal Reserve will offer $75 billion in 28-day credit through its Term Auction Facility today
July 1, 2008
Federal Reserve will offer $75 billion in 28-day credit through its Term Auction Facility on July 14 and 28, 2008
July 1, 2008
Federal Reserve announces results of auction of $75 billion in 28-day credit held on June 30, 2008
June 30, 2008
Federal Reserve will offer $75 billion in 28-day credit through its Term Auction Facility today
June 25, 2008
FOMC statement
June 17, 2008
Federal Reserve announces results of auction of $75 billion in 28-day credit held on June 16, 2008
June 16, 2008
Federal Reserve will offer $75 billion in 28-day credit through its Term Auction Facility today
June 3, 2008
Tentative 2009 FOMC meeting schedule
June 3, 2008
Federal Reserve announces results of auction of $75 billion in 28-day credit held on June 2, 2008
June 2, 2008
Federal Reserve will offer $75 billion in 28-day credit through its Term Auction Facility today
May 29, 2008
Federal Reserve will offer $75 billion in 28-day credit through its Term Auction Facility on June 2, 16, and 30, 2008
May 27, 2008
Minutes of Board discount rate meetings, March 31 through April 30, 2008
May 21, 2008
Minutes of Federal Open Market Committee, April 29-30, 2008
May 20, 2008
Federal Reserve announces results of auction of $75 billion in 28-day credit held on May 19, 2008
May 19, 2008
Federal Reserve will offer $75 billion in 28-day credit through its Term Auction Facility today
May 6, 2008
Federal Reserve announces results of auction of $75 billion in 28-day credit held on May 5, 2008
May 5, 2008
Federal Reserve will offer $75 billion in 28-day credit through its Term Auction Facility today
May 2, 2008
Federal Reserve, European Central Bank, and Swiss National Bank announce an expansion of liquidity measures
May 1, 2008
Approval of the discount rate action of the Federal Reserve Banks of Boston, Philadelphia, Richmond, Minneapolis, and Dallas
April 30, 2008
Approval of the discount rate action of the Federal Reserve Banks of Chicago, Kansas City, and St. Louis
April 30, 2008
FOMC statement and Board approval of discount rate requests of the Federal Reserve Banks of New York, Cleveland, Atlanta, and San Francisco
April 22, 2008
Federal Reserve announces results of auction of $50 billion in 28-day credit held on April 21, 2008
April 21, 2008
Federal Reserve will offer $50 billion in 28-day credit through its Term Auction Facility today
April 15, 2008
Minutes of Board discount rate meetings, February 19 through March 18, 2008
April 8, 2008
Minutes of Federal Open Market Committee, March 10 and 18, 2008
April 8, 2008
Federal Reserve announces results of auction of $50 billion in 28-day credit held on April 7, 2008
April 7, 2008
Federal Reserve will offer $50 billion in 28-day credit through its Term Auction Facility today
March 28, 2008
Federal Reserve will offer $50 billion in 28-day credit through its Term Auction Facility on April 7 and April 21, 2008
March 25, 2008
Federal Reserve announces results of auction of $50 billion in 28-day credit held on March 24, 2008
March 24, 2008
Federal Reserve will offer $50 billion in 28-day credit through its Term Auction Facility today
March 20, 2008
Approval of the discount rate action of the Federal Reserve Bank of Philadelphia
March 19, 2008
Approval of the discount rate action of the Federal Reserve Banks of Richmond, Minneapolis, and Atlanta
March 18, 2008
Approval of the discount rate action of the Federal Reserve Banks of Cleveland, Chicago, Kansas City, Dallas, and St. Louis
March 18, 2008
FOMC statement and Board approval of discount rate requests of the Federal Reserve Banks of Boston, New York, and San Francisco
March 17, 2008
Approval of the discount rate action of the Federal Reserve Banks of Boston, Cleveland, Richmond, Chicago, Minneapolis, Kansas City, and San Francisco
March 16, 2008
Federal Reserve announces two initiatives designed to bolster market liquidity and promote orderly market functioning
March 14, 2008
The Federal Reserve is monitoring market developments closely and will continue to provide liquidity as necessary to promote the orderly functioning of the financial system
March 11, 2008
Federal Reserve announces results of auction of $50 billion in 28-day credit held on March 10, 2008
March 11, 2008
Federal Reserve and other central banks announce specific measures designed to address liquidity pressures in funding markets
March 10, 2008
Federal Reserve will offer $50 billion in 28-day credit through its Term Auction Facility today
March 7, 2008
Federal Reserve announces two initiatives to address heightened liquidity pressures in term funding markets
February 29, 2008
Federal Reserve will offer $30 billion in 28-day credit through its Term Auction Facility on March 10 and March 24, 2008
February 26, 2008
Minutes of Board discount rate meetings, January 21 through January 30, 2008
February 26, 2008
Federal Reserve announces results of auction of $30 billion in 28-day credit held on February 25, 2008
February 22, 2008
Federal Reserve will offer $30 billion in 28-day credit through its Term Auction Facility on February 25, 2008
February 20, 2008
Minutes of Federal Open Market Committee, January 9, 21, and 29-30, 2008
February 12, 2008
Federal Reserve announces results of auction of $30 billion in 28-day credit held on February 11, 2008
February 8, 2008
Federal Reserve will offer $30 billion in 28-day credit through its Term Auction Facility on February 11, 2008
February 1, 2008
Federal Reserve will conduct two auctions of 28-day credit through its Term Auction Facility in February
January 31, 2008
Approval of the discount rate action of the Federal Reserve Banks of Richmond, Minneapolis, and Dallas
January 30, 2008
FOMC statement and Board approval of discount rate requests of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Atlanta, Chicago, St. Louis, Kansas City, and San Francisco
January 29, 2008
Federal Reserve announces results of auction of $30 billion in 28-day credit held on January 28, 2008
January 25, 2008
Federal Reserve will offer $30 billion in 28-day credit through its Term Auction Facility on January 28, 2008
January 24, 2008
Approval of the discount rate action of the Federal Reserve Banks of Atlanta and Kansas City
January 22, 2008
Approval of the discount rate action of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Dallas, San Francisco, and St. Louis
January 22, 2008
FOMC statement and Board approval of discount rate requests of the Federal Reserve Banks of Chicago and Minneapolis
January 15, 2008
Federal Reserve announces results of auction of $30 billion in 28-day credit held on January 14, 2008
January 11, 2008
Federal Reserve will offer $30 billion in 28-day credit through its Term Auction Facility on January 14, 2008
January 8, 2008
Minutes of Board discount rate meetings, November 5
through December 11, 2007
January 4, 2008
Federal Reserve will conduct two auctions of 28-day credit through its Term Auction Facility in January
January 2, 2008
Minutes of Federal Open Market Committee, December 6 and 11, 2007
October 29th, 2008 at 8:48 am
@Kid Dynamite:
Agreed. My sarcastic post was more or less intended to show that it appears to me the programs seem to be targeted to maintaining equity prices rather than the economy. I’ve posted before about my ideas on the wads of money being spent without cutting other non-essential programs, how real wages have been stagnant for years, etc.
But on a more serious note, stock buy back programs could be radically different in normal times. Instead of announcing a buy back and then buying whatever the price, companies could, if they do indeed have extra cash and no programs to spend them on, buy back at a floor, rather than the prevailing price. Mish has posted and been irked about GE’s buyback earlier and now that they are in trouble, how the money could have been better spent. If GE had established a floor for the buy back, they would only have bought when the stock was a “bargain”…
Like Mish, not an economist. Undergraduate studies were in EE, so not all my thoughts make a circuit.
October 29th, 2008 at 9:00 am
Credit Card ABS is the next to go. These structured securtiries are kept in money market and enahnced cash funds around the world. As begin to get downgraded their will be more cash funds recognizing losses or trading further below par, when this happens cash funds need to increase liquidity to stop from selling impaired assets, hence there are less buyers in the market and liquidity will continue to be awful. This is one of the reason the govt ahs the CP program, we will see if it works.
darthBETA.typepad.com
October 29th, 2008 at 9:27 am
And some still feel stocks are not cheap here…
http://www.minyanville.com/articles/dow-Credit-djia-equities-GNMA-spx/index/a/19711
Talk is Cheap, Stocks Aren’t..
I am not a big fan of Minyanville..Todd Harrison needs an editor, but the world economy is indeed schizophrenic, and still very risky for an investor like me.
Schizophrenia: Charecterized by abnormalities in the perception of reality…
October 29th, 2008 at 9:38 am
Never had a HELOC. Didn’t like the looks of them and didn’t need it.
The secret of credit cards is not to use ‘em :) I have cut back to two majors and seldom get above 10% of the limit, so they keep raising the limit. I could now buy a mid-size American car on each, which is pretty crazy. But, it’s nice to have that in an emergency like Katrina.
I don’t know if being prudent was in my interest though. Sounds like Paulson is going to buy all those bad accounts from the profligate issuers. I suppose next we’ll be buying deliquent Sprint accounts.
October 29th, 2008 at 10:13 am
I opened a small 20k HELOC in June to do maintenance and improvements with a bank where I have accounts. I have near perfect credit. The housing market where i live is down just a small bit, but homes over $1M are still are selling here.
Didn’t even get to touch the line of credit before they suspended. Consumer Reports says that this does have an impact on credit scores because though you are locked out of using the $20K it looks no different than if you were maxed out.
I confess its with E*Trade Bank and they are a poster child of the mortgage mess but what irks me now is they want BailOut money. Which they’ll not lend out but just sit on to make their Bal.Sheet look good.
-They are rats
October 29th, 2008 at 11:03 am
Why deal with evil banks at all? My credit union HELOC is just fine, thanks, and there’s absolutely never been a problem or withdrawn offer.
Citi and JP Morgan are simply evil, evil banks.
October 29th, 2008 at 11:21 am
I suspect that the banks sent out letters to everyone cutting credit lines and warning about card usage when things were really hitting the fan, then they started to actually review each account and re-extend the credit to those who made the grade. Which would imply that they weren’t paying much attention when they initially extended the credit.
October 29th, 2008 at 12:52 pm
Not just you, had the same trick pulled on me by BofA.
Not that I cared. I’m gonna be wallowing in cash after this banner year.
*your neighborhood short seller*
October 29th, 2008 at 1:29 pm
Barry, you have a HELOC? My faith in you has been severely shaken. The folks I know who use HELOCs are the same ones who kept repeating the mantra “home prices in the Bay Area will never go down.”
October 29th, 2008 at 1:47 pm
Tell me how these schizophrenics earn their millions while rational people have been shown the door.
Schizophrenics running the world economy… What could possibly go wrong here?
October 29th, 2008 at 3:19 pm
It’s what happens with all this excessive government intervention. The Banks are just trying to game the system given whatever the latest tax-payer funded program is. Short-term profits are still the name of the game, none of these incompetents are doing ANY work to really revamp their strategies and business models to meet the new realities. It’s so pathetic.
I don’t have a HELOC but I can’t say there’s been any reduction in the number credit card offers that receive by mail or e-mail.
By the way,
“Any review of the charges could see it wasn’t frivolous, but were all business T&E”
Are you sure it wasn’t business T&A? (you can tell us, no one will know).
;-)
October 29th, 2008 at 4:13 pm
A few weeks after they went blammo, I got a credit card offer from WaMu. Funny, funny stuff.