Midway through the fourth quarter there are two kinds of card-issuing companies: those that have given clear guidance on their exposure to a recent spike in consumer bankruptcies, and those that have given little color.
At least seven large companies have provided estimates of chargeoffs they expect to take this quarter because of a rush of bankruptcy filings ahead of the Oct. 17 effective date of the new bankruptcy law. The law requires more people to enter repayment plans instead of erasing their debt under bankruptcy protection from creditors.
But MBNA Corp. and Washington Mutual Inc. have yet to quantify what their chargeoffs for consumer bankruptcy filings might be this quarter. On Tuesday, MBNA reported $350 million of net credit losses in managed loans for October, but the Wilmington, Del., card issuer did not say whether any of those losses were related to consumer bankruptcy filings.
Washington Mutual has not quantified the effect, but Joe Saunders, the president of its cards unit, said in an investor presentation Tuesday that the jump in personal bankruptcies would have "a modest impact" on fourth-quarter chargeoffs.
Piper Jaffray Inc. analyst Andrew Collins said he is surprised at the reticence at some companies and at Wamu's predictions of such modest exposure to bankruptcy reform. The Seattle thrift giant bought the San Francisco near-prime card issuer Providian Financial Corp. in October.
Calls to MBNA had not been not returned by press time, but a spokesman for Wamu said it does not plan to provide more specific guidance on bankruptcy-related chargeoffs.
Analysts said most banks and other credit card issuers are poised to take their lumps this quarter; many have told investors to expect sizable charges. Bank of America Corp., which is set to acquire MBNA this quarter, said Nov. 9 that it expects net chargeoffs to be $400 million to $500 million higher in the fourth quarter than they were in the third.
Five hundred thousand consumers sought protection in the 10 days before the law took effect, according to a report issued last month by Lundquist Consulting Inc. That is a normal total for four months, and 300,000 more than had been predicted.
Though the law could affect other types of installment debt, analysts have said that credit cards, as unsecured loans, were the most susceptible.
Some doubt that the effects will be over this quarter.
On Wednesday, American Express Co.'s chairman and chief executive, Kenneth I. Chenault, said some credit card issuers could record additional charges in the first quarter due for the bankruptcy rush. Though American Express requires a writeoff upon notification of a bankruptcy filing, some card issuers wait 10 to 75 days to charge off the account, he said.
"We don't believe there is a chance of a material bankruptcy tail following us into January," Mr. Chenault said at a New York conference hosted by Merrill Lynch & Co., but it "might be an issue for a number of major players come next year."
Analysts largely downplayed Mr. Chenault's comments, saying banks and other credit card issuers must charge off such accounts within 60 days. In any case, they said, bankers would generally prefer to take their medicine now rather than wait for 2006.
Edwin Groshans, an analyst at Swiss Reinsurance Co.'s Fox-Pitt, Kelton Inc. who covers credit card issuers, said in a Thursday interview that 90% of all bankruptcy-related charges are likely to be taken in the fourth quarter. Any spillover would be more closely tied to delays at the courts because of a backlog of filings, he said.
"Can there be a tail into the first quarter? Yes, but it is going to be very small," Mr. Groshans said. "The overwhelming majority of charges will be recognized in the fourth quarter."
Denis Laplante, an analyst at Keefe, Bruyette & Woods Inc., said that a "residual impact" on first-quarter chargeoffs is possible but that financial companies "are going to try to get this behind them rather than wait until next year." Delinquencies and chargeoffs could rise further next year because of rising interest rates and the implementation of new minimum-payment requirements, he said.
Bankers and analysts said that financial companies should emerge better protected against difficult economic cycles once the wave of chargeoffs ebbs. Filings totaled only 14,000 in the week that ended Nov. 5, Lundquist Consulting reported.
In a conference call Monday, Bobby Mehta, the chief executive of HSBC North America Holdings Inc. and HSBC Finance Corp., said that the bankruptcy law would "cause a fundamental shift in the chargeoff characteristics" of the card business.
Bankruptcy-related chargeoffs have tumbled in November as if "they have come down off a cliff," Mr. Mehta said, and filings will return to 2004 levels "once this wave has washed through."
