Charge-offs and provisions for bad loan are creeping up at major lenders. From Wolf Richter at wolfstreet.com:
The economy depends on them, but they’re cracking.
American consumers are holding $1 trillion in revolving credit, mostly in credit card debt. So how well is this segment of consumer debt holding up?
Synchrony Financial – GE’s spin-off that issues credit cards for Walmart and Amazon – disclosed on Friday that, despite assurances to the contrary just three months ago, net charge-off would rise to at least 5% this year. Its shares plunged 16% and are down 27% year-to-date.
Credit-card specialist Capital One disclosed in its Q1 earnings report last week that provisions for credit losses rose to $2 billion, with net charge-offs jumping 28% year-over-year to $1.5 billion.
Synchrony, Capital One, and Discover – a gauge of how well over-indebted consumers are managing to hang on – have together increased their Q1 provisions for bad loans by 36% year-over-year. So this is happening.
Other worries about consumer debt in the US are piling up. The $1.4 trillion in student loans are already in crisis, though the government backs them, and they cannot be charged off in bankruptcy. Mortgage debt is still hanging in there, given the surge in home prices that make defaults unlikely. But of the $1.1 trillion in auto loans, subprime loans packaged into asset backed securities are getting crushed by net charge-off rates that are worse than during the Financial Crisis.
The US economy is fueled by credit. Americans turning themselves into debt slaves makes it tick. Take it away, and what little growth there is – nearly zero in the first quarter – will dissipate into ambient air altogether. So it’s time to take the pulse of our American debt slaves
In a new study, life insurer and financial services provider Northwestern Mutual found that 45% of Americans that have debt spend “up to half of their monthly income on debt repayment.” Those are the true debt slaves.
Excluding mortgage debt, American carry an average debt of $37,000. Of them, 47% carry $25,000 or more, and more than 10% carry $100,000 or more in debt, excluding mortgage debt.
To continue reading: Are American Debt Slaves Getting in Trouble Again?