March 14, 2007: Credit Cards: making sub-prime mortgages look pristine

With the glare of publicity on sub-prime mortgages, I thought it would be interesting to peek into the credit card industry and see what they were up to. Remember, in 2002, the so-called "sub-prime" credit card bubble caused a temporary panic in the financial markets.

The 2007 mail volume forecast for credit card solicitation is 8.5 billion pieces, an increase of 5% from 2006. The industry response rate was 42 basis points in December, up 7 basis points from November.

The credit card industry continued its heavy reliance on 0% teasers. Most mail solicitations included a 0% balance transfer teaser rate.

Top mail issuers are, in order of volume, HSBC, Capital One, Chase, Bank of America, Ciibank, WaMu, Discover, Am Ex, Barclays and First Premier.

Citibank was the heaviest user of 0% balance transfers, with 84% of mail volume containing 0% transfer offers.

Fixed rate card mailings declined to 18% of all offerings in January, 2007.

HSBC has aggressively increased their mail volume with 117 million pieces, up 99% from a year ago.

Capital One had 93 million mail pieces and continues to push 0% balance transfers.

Chase had 72 million mail offerings. 69% of Chase's balance transfer offers had a 0% teaser attached.

Bank of America had 72 million mail offerings with 0% balance transfers on 78% per cent of the mailings.

Citibank had 71 million credit card mail offerings with 84% of the solicitations having a 0% balance transfer.

Washington Mutual had 53 million credit card solicitations, with 54% containing 0% balance transfers.

Discover had 50 million mail solicitations with 97% offering a 0% teaser transfer rate.

American Express had 40 million mail credit card solititations with 54% being 0% transfers.

WHY IS THIS NOT BEING REPORTED IN THE MEDIA? This may be a larger scandal than the in vogue sub-prime mortgage situation.

With 24% of Americans accepting a new credit last year alone, the pent up credit card bubble is a potential disaster.

Still, many analysts have Buy ratings on Bank of America (BAC), Capital One (COF), Citigroup (CITI), and Morgan Stanley (MS).

I don't buy it. Should you?