Our Changing Globe

Posts Tagged ‘US banks’

Put together, the seven biggest U.S. credit card issuers earned over $27 billion in operating profit in 2007.

Although banks can borrow at interest rates that are nearly as low as Treasury yields, they’ve been cutting credit lines and raising their fees, and the average annual percentage rate offered to new card customers in the U.S. is now 14.2 percent.

Just a few years ago, a booming economy kept loan losses in check and banks perfected marketing tricks and introduced the concept of teaser rates, and in just eight years Americans received around 44 billion pieces of mail jammed into their mail-boxes that promoted credit cards.

Now however, issuers are developing new models to calculate the fees and interest rates that they say are needed to cover the growing number of bad debts.

New rules are being put into place too, and if somebody who’s had a card for a long period suddenly uses it at a grocery store for the first time, then it’s quite likely that he’ll be flagged as a potential credit risk and be added to a watch list.

It’s perhaps understandable that banks need healthy credit card earnings to ensure their survival because they can no longer rely on the securities markets that caused the economy to collapse, but it now appears likely that many of them will lose their long-term customers after the economy stabilizes.

Credit cards have become a mainstay of U.S. banking in recent years because the offer a steady income without the volatility that goes with trading and investment banking, but loans on credit cards are unsecured, and the industry absorbed about $55 billion in credit card defaults last year, which is up from $43 billion in 2007.

Fed rules, which will curb sudden changes in interest rates are set to go into effect on July 1, 2010 – but many Democrats in Congress are now pushing to have the legislation advanced, and they also want greater built-in consumer protection.

The top 10 recipients of the government’s $700 billion financial bailout plan (TALF) paid lobbyists around $9.5 million during the first three months of this year.

GM (General Motors Corp.) which just announced that it will most likely default on a $1 billion bond payment that’s due June 1, spent $2.8 million on lobbying in the first quarter of 2009.

GM has already received $13.4 billion in government loans and is pushing for an additional $5 billion.

Other bailout recipients that spent more than $1million in an attempt to influence future government decisions were;

• A.I.G – which has already received $70 billion
• Citigroup Inc. – 45 billion
• JPMorgan Chase & Co. – $25 billion
• Bank of America Corp., received $5 billion and spent $660,000 on lobbying which is 20% down from the last quarter of 2008.
• Wells Fargo & Company, $25 billion in bailout money, and $700,000 on lobbying.
• Goldman Sachs, received $10 billion and spent $670,000
• Morgan Stanley got $10 billion and spent $540,000
• U.S. Bancorp got $6.6 billion and paid out $170,000
• PNC Financial Services Group, received $7.8 billion and spent $135,000 which is almost double its last quarter’s lobbying costs.

The companies in question deny using bailout money for lobbying, but seven of them spent more attempting to influence the government than they did in the last quarter of 2008, and Craig Holman of the watchdog group Public Citizen said “It’s completely unjustifiable. They say they’re not using public money for these purposes, but in effect these companies are steering taxpayer funds to lobbying, and campaign contributions”, and added, “What AIG’s reporting is, in fact, influence peddling”.