Weak Economy Set to Hit Credit Card Companies Hard: Reuters

Consumers affected by the economy and lenders impacted by the credit crunch will lead to “agony” for credit card issuers in the coming months, according to a Reuters story.

As businesses and consumers default on their credit cards, issuers are being forced to cut back on the credit they extend to current customers and are much more wary of signing up new ones. But these measures may be too little too late to stem credit losses, said one analyst.

"The bottom line is consumers have too much debt, they’re going to have to scale it back and that’s a painful process that will take time," Walter Todd, portfolio manager at Greenwood Capital Associates, told Reuters.

Another analyst, James Ellman, president at hedge fund Seacliff Capital, said that American Express and Discover will be more impacted than companies like Citigroup and Bank of America. Ellman noted that American Express and Discover rely very heavily on their card operations, whereas other major card issuers are much more diversified.

Visa and MasterCard will also be able to weather the storm as well because the two major card processors don’t extend credit on their own. Even with a potential drop in credit card volume, increased debit card use should fill the gap.