Is Consumer Credit Improving? Hackers Seem To Thing So
Edgar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
While investors' eyes will be glued at Global Payments (NYSE: GPN) stock for the rest of the week due to the hacker security breach, I will be keeping a close eye on major credit card names. MasterCard Inc. (NYSE: MA), Visa (NYSE: V), American Express (NYSE: AXP) and Discover Financial Services (NYSE: DFS) were all affected from the breach. If you haven't been following the recent events, possible reports of a New York City street gang with Central American connections cracked the network of Global Payments from January to February, breaching more than ten million charge card transaction records.
What does this mean for a fool investor? Well one thing to keep in mind, is that any negative losses will be incurred by Global Payments and not Visa or Mastercard. Rest assured that latter companies should see a slight sell-off as well from the negative publicity. This could potentially mean a great discount for long term investors in the aforementioned companies. Now I don't want to discourage readers from speculating on Global Payments, since Friday's 10% dive meant a great bargain for some bottom-feeder investors. If Global misses earnings by a large percentage later this week, then the price slide may continue even further despite its solid fundamentals.
Observing the chart above, it's easy to spot the robust uptrend of major credit card names since the beginning of 2012. Despite Visa and Mastercard lagging behind American Express and Discover in percentage gains for the last quarter, one thing is certain - consumer credit is improving.
At the end of last year, the New York Fed released the Household Debt and Credit Report, which showed that balances on most loan types have fallen. Consumer non-real estate debt had fallen by nearly $10 billion or 0.4% to settle at $2.28 trillion, which was approximately 9.6% below 2008's peak levels. Credit card limit increases jumped by $60 billion and new credit card accounts rose by 10 million to settle at 389 million. While there was also emphasis on rising credit report inquiries being a healthy sign, I respectfully disagree with a belief that a large percentage of those inquiries could have been from individuals who saw an improvement in their credit scores and were previously denied. What I am paying close attention to is the large masses that are now being bombarded with credit card offers and limit increases after long years of frugality by American Express and Bank of America in particular.
In my humble opinion, as we start creeping out of long years of recession with improving unemployment numbers, competitiveness in the lending arena will grow more aggressive. Competition will grow more fierce as lenders feel more confident in the stability of the employment, not just mere job creation. As banks became less risk averse, credit card offers have increased, limits have also increased. Look out for the next sign of buoyancy to be the decrease in annual fees in credit card offers.
Motley Fool newsletter services recommend American Express Company and Visa. The Motley Fool owns shares of Bank of America and MasterCard. edgarambart30 has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.