| Few lines of US bank business have proved as profitable or as seemingly failure-proof as consumer lending through credit cards. After all, what other loans carry interest rates close to 20% and a 50% return on equity? Bankers all wanted to get a piece of the action. As a result, there are 7,000 US bank card issuers. Over the past two years these have mailed out an astonishing 5 billion card offers many of them "pre-approved" to college and high-school students, as well as to the unemployed. Now credit card profitability has been almost halved and might even vanish altogether. In many cases, bankers have brought the problems on themselves. The US economy may be in a recovery phase, but the boom in credit card lending over the past two years has led to a 15-year high in delinquencies and rising bankruptcies. The banks' second quarter earnings figures indicate that loss ratios of credit card portfolios had risen by an average 40 basis points (bp) during the quarter, notes bank analyst George Salem of Gerard Klauer Mattison in New York. "Credit cards will clearly be the most troubled loan category for US banks in 1996 and 1997," Salem wrote in an prescient report published in June. |