On card companies enjoying the credit crunch

Following up on Visa’s credit card IPO last March 20, it seems that the so called credit crisis is not affecting the credit card firm.

Her main competitor, MasterCard (MA), doesn’t seem to fair badly either as the company reported that first-quarter income had doubled since last year. The company made $450m in the first three months of the year.

Visa (V), in its first public earnings announcement, said its income is up 28 per cent in the first three months of the year. The omnipresent credit card company earned $1.4b in Q1. As of May 2, Visa shareholders have seen their stakes grow 46 per cent since the IPO.

Sad enough, now remortgaging in a falling property market is getting tough. It seems that debt junkies all around the Western world (mainly USA and UK population) are moving from realising equity from their properties into credit card debt at horrendous rates. And in the case of USA, the increase in credit card debt  happened even after a 50 per cent drop in personal savings in March, now at a whopping 0.2% of income (household saving rates have consistently reached over 20% of the GNP in China).

I wonder how long it will take until someone realises that people are buying things they don’t need with money they don’t have. And the word starts spreading. And bumper profits from credit companies start falling.

That would probably mean recession if not depression, but hey! If you want to play the bubble and bust game, prepare for the vertigo feeling ahead.



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