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Credit Crunch. The direct effect on consumers, rather than indirect effect through the markets.

Posted by Adrian on February 4, 2008

In my opinion the credit crunch is in it’s infancy, in the sense we haven’t seen the direct consequences of credit lines being halted on a wider scale. I know of two banks that have rewritten their clause on credit, HSBC comes to mind and the big Australian bank Commonwealth Bank; and I imagine others have also inserted update clauses on credit. Both banks mentioned have indicated that credit (credit cards) could be stopped at any time, for any reason, of course payment owning on credit will continue. This is a curious measure that the banks are thinking of implicating, or have implicated. I wonder if the incentive too default on a credit card will increase once the bank takes away the credit?

Egg credit cards (horrible name), is a UK online banking company. One of a slew of online banking companies that were set up, for convenience and the off loading of disposal liquidity in the last 5yrs. So, a lot of people were giving easy access to credit and loans. Egg has indicated recently that it will stop credit cards and withdraw credit from 160,000 of it’s high risk customers , from the telegraph.co.uk ‘Egg stops high-risk customers’ credit cards’ article:

“Internet bank Egg is to stop the credit cards of around 160,000 high-risk customers, it has confirmed.




The move will affect 7pc of its two million credit card holders.

Customers will receive letters in the next few days which will warn them that their credit cards will stop working in 35 days’ time.

They are being targeted because they had a “higher than acceptable risk profile”. This typically means they are spending over their credit limit or failing to make minimum repayments.

News that Egg is attempting to stem further bad debts may be a signal that it is heading for another grim year of results for 2007, especially as the whole credit card market is getting more difficult with consumers cutting spending and struggling to repay debts.”

it seems the already battered banking giant Citigroup has bought other problem,

Prudential sold Egg to Citigroup in May 2007 after years of attempting to offload it. Prudential notched up losses of £140m in 2006 from Egg.

Citi paid £546m in cash for Egg, a price considered by analysts to be high. At the time, Prudential’s chief executive, Mark Tucker, said: “The sale of Egg realises greater value for our shareholders than retaining the business. Citi is the largest credit card issuer in the world and sees enormous opportunities to develop Egg’s business in the UK.”

Citi has to disclose the bad debts problem with a group of Egg customers because the business is funded by an off-balance sheet trust.

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One Response to “Credit Crunch. The direct effect on consumers, rather than indirect effect through the markets.”

  1. […] article written in the Financial Times online, indebted companies defaults are at an all time low. As I have mentioned, the credit crunch is in infancy as the direct effects have yet to be felt on a wider economic […]

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