Credit Card Companies under Fire: Delinquency Fear

Visa (NYSE:V), Mastercard (NYSE:MA) and the other credit card companies not only have to worry about customers not paying back their bills, but the trend is to limit or cut up cards all together.

Reports indicate that a substantial portion of of the 158 million US card holders using 1.5 billion cards have started defaulting and banks had to write of approx $21 billion in bad credit loans in the first six months of this year and expect a further loss of $55 billion in the next 12 months.

More Americans are being told to cut up their credit cards they aren't using, or just get rid of them, out of sight, out of mind: 

All of this type of news and just what's happening in our economy is hurting the bottom line of all the credit card companies, even Mastercard and Visa.

According to Federal Reserve figures, in the US alone more than $850 billion in unpaid credit card balances is at stake and fast approaching $1 trillion, roughly the same amount as in the subprime market.

CNN reported that worldwide, consumers have racked up more than $2.2 trillion in purchases and cash advances on major credit cards in the last year.

The unpaid debt portion of this with US consumers is $68 billion, thus increasing credit card debt by 7.8 per cent, the largest increase in seven years.

Investors looking to make a position in Visa, Mastercard, American Express or Discover (V, MA, AXP, DFS) should let the delinquency fears play out a bit before taking a large position in any of these companies.

Visa and Mastercard are the two Kings of the Industry and long-term, their business model and ROI make sense for any investor looking to hold the stocks for a few years.  But during these turbulent times, its risky to buy at the mercy of this swinging stock market.  With the pending 'Credit Card Bubble' on the brink, its best to let the Media play it out, before losing your shirt on yet another solid company like Visa.

Discliamer: No positions in any of the securities mentioned in this publication.