- The Washington Times - Wednesday, April 15, 2009

CHARLOTTE, N.C. (AP) - Investors got some mixed data about credit card losses Wednesday _ and decided to base their bets on the day’s more upbeat data.

Capital One Financial Corp., which issues MasterCard and Visa credit cards, said its U.S. and international credit card defaults rose in March. The news helped send Capital One’s stock and shares in other credit card issuers lower _ until American Express Co. revived many financial industry stocks with news that its U.S. credit card defaults rose only slightly last month, suggesting that the ability of cardholders to pay their bills may be stabilizing.

Default rates for credit cards usually track the jobless rate during tough economic times, but analysts say they are seeing a worsening of defaults as unemployment rates jump. The government reported last week that the unemployment rate shot up to 8.5 percent in March, a 25-year high. Nearly all lenders, including Bank of America Corp., JPMorgan Chase & Co. and Discover Financial Services, are seeing more customers stop making monthly payments.

“I think what the numbers tell you is that we’re not out of the woods yet. We are still seeing deterioration in consumer credit,” Keefe, Bruyette & Woods analyst Sanjay Sakhrani said. “That’s largely predicated on where unemployment trends are.”

McLean, Va.-based Capital One said its net charge-off rate for U.S. card holders _ the rate of loans for which collection is unlikely _ rose 1.27 percentage points from the previous month, to 9.33 percent in March. The rate for loans at least 30 days delinquent fell slightly to 5.08 percent from 5.10 percent.

In international card operations, the charge-off rate rose even more drastically _ 1.47 percentage points _ to 8.67 percent in March, while the 30-day delinquency rate rose to 6.25 percent from 6.16 percent in February.

But investors who fed a five-week rally in stocks decided to place bets on American Express’ news, contained in a Securities and Exchange Commission filing, that its defaults rose by a slim 0.20 percentage point to 8.80 percent. Many financial stocks rose on the news, and while analysts said the buying came on what’s known as short covering, it did indicate that investors were putting a positive spin on the day’s events.

In short covering, investors who had sold borrowed stock expecting the market to decline must buy shares back if they’re now expecting the market to rise. One reason for that expectation: American Express’ more upscale cardholders may be in a better financial position than other consumers, and therefore more willing to spend.

Capital One managed to join other financial stocks that reversed losses. It rose 25 cents to close at $17.32.

American Express, meanwhile, rose $2.19, or nearly 12 percent, to $20.62.

Separately, Discover Financial Services said Tuesday it plans to cut 500 jobs next month, or 4 percent of its work force, to help it weather the ongoing economic slump. Cuts will be made across all departments, with the majority taking place at its Riverwoods, Ill.-based headquarters, just outside of Chicago.

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