One Creative Thought: Bank Of America's Exposure to Credit Card Debt

While there is a potential bit of good news for the state of Delaware in the linked article, there's a very interesting piece of information regarding BofA's exposure to credit card debt.

Delawareonline The News Journal: BofA network could add jobs in Delaware.:

Bank of America is the nation's largest issuer of debit cards, with about 27 million. It is also the nation's largest credit card issuer with about 122 million and about 20 percent of outstanding balances, according to the Nilson Report, an industry newsletter.

Its lonely at the top - and IMHO being the nation's largest credit card issuer may not prove - in the long term - a desirable position. Those 122 million credit card are nearly 20 percent of all credit card outstanding balances.

The optimist will say, "That's good - after all, every outstanding balance earns an interest from the consumer and probably varies from 9 to 29.99 percent. What other investment (or receivable) earns 9 to nearly 30 percent interest, calculated on a daily balance? BofA is in a strong position!"

The pessimist will start with questions: "How much of that 20 percent outstanding balance number consists of credit card accounts at or near their maximum credit limit? How many are one or more payments late?"

The pessimist will continue (of course): "All it will take is one solid, economic hit to the USS Bofa. She won't need to sink, just take on water and list to one side. Anything causing layoffs or a decline in the spendable income of those credit card holders will turn the USS Bofa's 20 percent assest into a larger than 20 percent liability. When individual accounts start going toes-up you won't see the ocean for the splashes from those abandoning ship!"

The indication within USS Bofa's recent activities suggest the US market is saturated financially. So its time to take the USS Bofa on a world cruise at hyper-speed, establishing beach heads within foreign nations.

"Stake the future on a future stake and give me full ahead!" seems to be the cry ringing from the USS Bofa's bridge these days.

And keep in mind - BofA is considering its own credit card network. Estimates to initiate the network runs around $100 million US. Offsetting this debt is a potential (claimed) savings of $75 million US. So lets see - oh yeah, its only an initial $25 million US loss the first year.

Of course, everyone jumping into the use/acceptance of BofA's credit card would pay a fee, so perhaps USS Bofa would recoup the $25 million US and perhaps even more.

Why - could we even speculate on the potential for a credit card war?

One last thing to remember about USS Bofa's exposure... the net is filled with rumours about USS Bofa entering China and establishing credit card use there as it has elsewhere. No doubt the initial lines of credit would have to enticing to get the Chinese to "sign on". The interesting thing about it is this:

What will USS Bofa do when Chinese credit card accounts start going toes-up? Will the COMMUNIST Chinese government "enforce" bad debt collection? How would they do this - prision time or worse? How much of USS Bofa's IT infrastructure will need to be "exposed" to the COMMUNIST Chinese government? Some, none - or all?

If this comes to pass - imho, its time to get off the USS Bofa at the very next port of call and wave bye-bye as she sails into uncharted waters.