Wednesday, May 14, 2008


As I predicted in The Coming Economic Tsunami

B of A does not see a very rosy picture and they should now

BofA sees consumers under pressure

Bank of America (BAC) is the latest big company to note the pain being felt by consumers hit by rising food and fuel prices. BofA exec Liam McGee told investors at a conference in New York that the bank has seen a “recent sharp increase” in spending on necessities by its credit-card customers, Bloomberg reports. The comment comes a week after giant retailer Wal-Mart (WMT) said the slowdown in the economy was observable through what it called “the paycheck cycle,” in which sales drop late in the month as workers run low on cash, and a day after JPMorgan Chase (JPM) chief Jamie Dimon said he believes a recession could be deeper than the 1990 and 2001 pullbacks.

BofA is also being hit by the housing bust, McGee said. He said the bank now expects to post losses above 2.5% of its home equity loan portfolio, up from a projection last month of a loss between 2% and 2.5%, Bloomberg reports. While McGee says the bank is “obviously not happy with rising credit losses,” The Wall Street Journal reports, it’s hoping to weather the storm by trying to attract more affluent consumers.

May 13 (Bloomberg) -- Bank of America Corp., the nation's biggest consumer bank, said losses on home-equity loans will be even worse than predicted three weeks ago, adding to evidence that more consumers are falling behind on debts.

More customers are under financial stress and using credit cards to pay for necessities, said Liam McGee, president of the consumer and small business division, at an investor conference today in New York. Losses on the bank's $118 billion in loans linked to home values may top 2.5 percent, higher than the 2 percent to 2.5 percent projected last month. He didn't specify a time frame.

Credit-card customers are cutting back on retail, travel and entertainment purchases, said McGee, whose company is the nation's largest credit-card issuer and ranks No. 1 by deposits. That backs up economists and bankers who say the U.S. may be teetering near a recession as consumers struggle with job losses and gasoline prices of more than $4 a gallon.

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From Value Line

The housing market remains in a dreadful slump, with no end in sight. In fact, recent construction numbers, in particular those relating to March housing starts and building permits, suggest that the downturn continues to intensify. By way of example, in January of 2006, when the housing cycle was in its ascendancy, some 2.3 million units were started on an annualized basis. In March of this year, that number stood at 947,000. Home sales also are suffering, with sales of previously owned homes off 2% in March from February and down 19.3% from last March. Meanwhile, home prices remain depressed, and both foreclosures and inventories of unsold homes are rising. It is not a pretty picture.


Anonymous said...

well that sucks.


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