Credit Cards May Pull Back $2 Trillion in Lending

The U.S. credit-card industry may pull back well over $2 trillion of lines over the next 18 months due to risk aversion and regulatory changes, leading to sharp declines in consumer spending, prominent banking analyst Meredith Whitney said.

AP

The credit card is the second key source of consumer liquidity, the first being jobs, the Oppenheimer analyst noted.

"In other words, we expect available consumer liquidity in the form or credit-card lines to decline by 45 percent."

Bank of America , Citigroup and JPMorgan Chase represent over half of the estimated U.S. card outstandings as of Sept. 30, and each company has discussed reducing card exposure or slowing growth, Whitney said.

A consolidated U.S. lending market that is pulling back on credit is also posing a risk to the overall consumer liquidity, Whitney said.

Mortgages and credit cards are now dominated by five players who are all pulling back liquidity, making reductions in consumer liquidity seem unavoidable, she said.  "...We are now beginning to see evidence of broad-based declines in overall consumer liquidity."

"In a country that offers hundreds of cereal and soda pop choices, the banking industry has become one that offers very few choices," Whitney wrote in a note dated Nov. 30.

She also said credit lines to consumers through home equity and credit cards hadbeen cut back from the second-quarter levels.

"Pulling credit when job losses are increasing by over 50 percent year-over-year in most key states is a dangerous and unprecedented combination, in our view," the analyst said.

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