Banking analyst Meredith Whitney is credited with questioning assets on bank balance sheets given the collapse in the real estate market. Taking advantage of a complete lack of information, Ms. Whitney triggered a massive collapse of trust in an industry by claiming that mortgage-backed securities were worth far less than what the market had perceived.
While she may have had a basis for her claims, her assessment was more sensational than factual. Mortgage-backed securities are quite complex instruments whereby loans are sliced, diced
With the economic downturn, rising unemployment, decline in house prices, and limited ability for consumers to continue using their homes as an ATM; credit card debt is poised to be the next disaster in the financial sector with bearish outlooks for credit lenders Capital One (COF), Discover (DFS), and American Express (AXP). Credit card processors such as Visa (V) and MasterCard (MA) have also declined with the overall market, but are leveraged to the volume of transactions with debit and credit cards rather than
Rising rates are accelerating credit-card defaults and soured debt could further undermine the financial system
The next horror for beaten-down financial firms is the $950 billion worth of outstanding credit-card debt—much of it toxic.
That's bad news for players like JPMorgan Chase (JPM) and Bank of America (BAC) that have largely sidestepped—and even benefited from—the mortgage mess but have major credit-card operations. They're hardly alone. The consumer debt bomb is already beginning to spray shrapnel throughout the financial markets, further weakening the U.S. economy....
Top 5 Companies by Largest 1-Year Stock Price Decline
After a brief, one-day rally in the financial sector following the Fannie Mae (FNM) and Freddie Mac (FRE) bailout on Sunday, companies such as Lehman Brothers (LEH) and Washington Mutual (WM) have lost over 47% and 57% of their market value, respectively, compared to a 5% loss in the Financial Sector SPDR (XLF) over the last five trading days. In contrast, the UltraShort Financials ProShares ETF (SKF) is up 6% in this ti
I'll let the picture do the talking here. Taken from Calculated Risk, we see continued rising delinquencies across the board in Residential Real Estate, Commercial Real Estate, and Consumer Credit cards.
As if you needed another reason to get short Capital One Financial (COF). For purposes of this discussion, I am going to ignore the Credit Card portfolio and its accelerating delinquencies and charge offs. I am going to ignore the HELOCs. I am going to ignore the exposure to the collapsing UK housing market. I am going to ignore the Auto Finance portfolio, which is more than likely the next “shoe to drop”, to borrow CNBC's overused phrase. I hate to pile it on, but this should not be a $40 stock.
A quick history lesson for anyone not familiar with the history of Capital One, The Bank. Just
Consumer confidence keeps heading lower as gasoline keeps heading higher and property values plummet. This double whammy has the potential to put the consumer into a long tail-spin. In such an environment, as disposable income declines, credit card use goes up.
Visa (V) would benefit from such credit card use, as it already has. The stock has recently pulled off its high of $90 and sits a good 12% lower. Meanwhile, credit card issuers will not fare so well. Companies like Capital One, which issue unsecured debt, will see increasing amount of delinquencies and loan defaults. Capital One (COF)
Donna Kardos explained the recent monthly report released by Capital One (COF) that provides detail on the position of their outstanding credit and corresponding delinquencies. The original 8k can be found here.
The bottom line is that Capital One is in no way containing their problems. Write-offs approaching half a billion dollars a month is not funny. Shares were bid up recently in a short-cover scare, but that does not take away the fact that there are still major problems. Check out this commentary and watch for Part 2 later today where we dissect the latest numbers.
On Thursday, April 10, an article posted by Morningstars Ganesh Rathnamdiscussed
some wonderful ways to profit from selling PUT options against the
shares of Capital One (COF), as the author believes that the market has
it wrong. Remember, the analyst is suggesting a bullish strategy.
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Here are the highlights of the analysts report and a few comments:
Aside from Visa (V) or Mastercard (MA), it doesn’t seem as if the credit card issuers have been getting the attention they deserve. With all of the panic and concern surrounding the brokers and builders, perhaps plates are too full to take on any more. Yet, I have been thinking about how easy credit policies made available for housing created a monstrous economic problem. Even so, it does seems plausible that companies issuing collateralized debt could eventually see a recovery if the underlying property can be liquidated for some portion of its worth. But, what happens as defaults rise on
Investors would be wise to beware the Bear Market ebb tide that is currently just getting underway.
The old Wall Street saying that a rising tide lifts all boats is even more true in reverse. Once the tide starts flowing out it becomes a dangerous self reinforcing force.
This bear market ebb tide will certainly drag Capital One Financial Corp. ( COF ) down as it is one of the nations leading issuers of credit cards. As the recession deepens people who are losing their houses and people who have lost their jobs will be far less concerned about staying current with credit...
The benefits of shorting the investment banks and real estate companies are too well known.The next bubble is in credit card debt which is going to see huge defaults.Capital one financial is smaller compared to American Express and is worse off financially.
Capital One (NYSE:COF) needs to shake its head. Long known for their marketing prowess and finding more ways to hook consumers on plastic debt they now want you to look the other way as the CEO blows out a truck load of stock options and reduces his own personal exposure to Capital One.
At essentially the same time corporate press releases are issued saying that Capital One is using the Gretzky Concept in their business expansion. For the non hockey fan, and there may be many US investors who do not follow hockey, Gretzky was a phenomenal hockey player who had a sixth sense about whe...
Capital One Signals Lower...
- Our short and longer term signals continue to get more negative. We entered negative positions a few days ago and we maintain that COF will continue to...
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Banking analyst Meredith Whitney is credited with questioning assets on bank balance sheets given the collapse in the real estate market. Taking advantage of a complete lack of information, Ms. Whitney triggered a massive collapse of trust in an industry by claiming that mortgage-backed securities were worth far less than what the market had perceived.
