US Economy - Outlook Dims on Credit - by Lauri Kulikowski
More analysts are becoming increasingly pessimistic toward the consumer credit industry. Howard Shapiro, an analyst at Fox Pitt Kelton Cochran Caronia Waller, on Monday downgraded his outlook for the specialty finance sector to market weight from overweight, and Sanjay Sakhrani, an analyst at Keefe, Bruyette & Woods, cut his buy-equivalent rating on American Express to market perform. Both cited mounting problems in consumer credit, including the inability of some people to pay off balances and the unwillingness of others to add to them. After examining recent data from several major consumer credit card issuers including delinquency trends, utilization rates and payment trends, "card credit has definitely inflected and we are seeing all the signs of distressed consumer behavior signaling a change in the economic climate," Shapiro wrote in a note. "This includes lower cure rates, higher utilization rates, lower payment rates and the like. The trajectory of losses in the industry going forward will depend highly on the U.S. unemployment rate." Credit losses will be particularly painful at American Express due to its "aggressive" growth in receivables over the past two to three years, "which likely reflected a degree of loosening underwriting standards at the trough of the credit cycle," he writes.
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