While we all hear about the subprime home loan problems the banks are having, we have not heard about credit card write-offs. If a person was to default on a home loan, why wouldn’t they just go ahead and stop paying on their credit cards? Their credit score would be ruined anyway and there would be no incentive to keep up payments. Credit card debt is unsecured–banks can’t reclaim dinners at McDonald’s and vacations taken five years ago.
I went to American Express’ web site and looked at a shareholder presentation. It listed the following. Bank of America has $161B in credit card loans and 29% is subprime (FICO less than 660). Citigroup has $194 in credit card loans and 24% is subprime. JPMorgan has $151B in credit card debt and 20% subprime.
Now, let’s look at the tangible assets (capital) of each bank and what percentage is equivalent to its subprime credit card debt. Citigroup has $60.6 billion in equity (capital) and $46.56 B in subprime credit card debt , which equals 76.83%. Bank of America has $68 billion in equity and $46.7 B in subprime credit card debt, which equals 68.7%. JPMorgan has $74 B in equity and $30.2 B in subprime credit card debt, which is the least amount at 40.8%.
What the FDIC covers is the following: $100,000 for one person’s certificates of deposit and savings; $200,000 for a joint account; $250,000 total for retirement accounts (IRAs, 401Ks, SEPs, Roths, etc.); if it is a trust account, it can be up to $100,000 for each person on the trust.
Don’t be foolish and have more than these limits!!!!! If you know someone who is elderly and has a large slug of cash at a bank, make sure that it is divided in such a way as to be covered by the FDIC.
Here is a 33 page guide from the FDIC. http://www.fdic.gov/deposit/deposits/insured/yid.pdf
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