Here’s bad news for the banks’ credit card units. Capital One (COF), which reported a deeper-than-expected net loss last night, said on its conference call that it expected card defaults to surge past 10%. The current default rate is 8.4%, which is ahead of the 8.1% it was expecting just last quarter.
For this type of thing, it all comes down to unemployment. If it the rise halts and people find jobs again, this should turn around to. If not, then the losses will exceed anything they’ve planned for.
In a note, FBR analyst Scott Valentin said Capitol One would likely need to raise between $3-$6 billion, but that the bank should be able to hold on.