Bank Profits feel Pinch from Strapped Consumers

By James B. Kelleher, Reuters

This year’s surge in consumer bankruptcy filings is taking a predictable bite out of bank profits.

But will the spike in charge-offs at Citigroup Inc., Wells Fargo & Co. and others be the temporary blip many investors assume? Or could it be a longer-term trend that will weigh on banks and credit-card issuers’ earnings into 2006 and beyond? Analysts aren’t sure.

The big uncertainty isn’t the new bankruptcy law itself, which is widely expected to reduce the number of consumers who successfully wipe out their debts to credit-card issuers and other creditors.

Instead, the question mark centers on unrelated new rules that require card issuers to be more honest about the cost of credit and to ensure that the minimum payments consumers make each month cover not only finance charges and penalty fees, but some principal as well.

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