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Consumers face tougher time getting loans as bank crisis spreads
June 9, 2008
Kevin G. Hall - McClatchy NewspapersIssue date: 6/5/08 Section: Real News
WASHINGTON _ The credit crisis triggered by bad home loans is spreading to other areas, forcing banks to tighten credit and probably extending the credit crisis that's dragging down the economy well into next year, and perhaps beyond.
That means consumers are going to have an increasingly difficult time getting bank loans for car purchases, credit cards, home equity credit lines, student loans and even commercial real estate, experts say.
When financial analyst Meredith Whitney wrote in a report last October that the nation's largest bank, Citigroup, lacked sufficient capital for the risks it had assumed, she was considered a heretic.
However, Whitney was proved correct: Citigroup pushed out its CEO, sought foreign investors and slashed its dividend. Her comments now carry added weight on Wall Street, and she has a new warning for ordinary Americans: The crisis in credit markets is far from over, and it increasingly will affect consumers.
"In fact, we believe that what lies ahead will be worse than what is behind us," Whitney and colleagues at Oppenheimer & Co. wrote in a lengthy report last month about threats faced by big national banks, including Bank of America, Wachovia and others.
The warning is scary considering what's already behind us in the credit crisis _ the resignation or firing since last August of CEOs at almost every large commercial or investment bank; the Federal Reserve lowering its benchmark lending rate by 3.25 percentage points; a Fed-brokered deal to sell investment bank Bear Stearns; and weekly auctions of short-term loans from the Fed worth billions of dollars to keep credit markets functioning.
Whitney argues that the worst is still ahead because the financial tools that enabled credit to flow so freely to homeowners and consumers for most of this decade are likely to remain in a prolonged shutdown indefinitely.
"After years of inherently flawed underwriting, banks face the worst yet of the credit crisis _ over $170 billion in write-downs and charge-offs from consumer loans," Whitney told McClatchy. The same kind of losses from housing may be ahead for credit extended to consumers, she said.
That means consumers are going to have an increasingly difficult time getting bank loans for car purchases, credit cards, home equity credit lines, student loans and even commercial real estate, experts say.
When financial analyst Meredith Whitney wrote in a report last October that the nation's largest bank, Citigroup, lacked sufficient capital for the risks it had assumed, she was considered a heretic.
However, Whitney was proved correct: Citigroup pushed out its CEO, sought foreign investors and slashed its dividend. Her comments now carry added weight on Wall Street, and she has a new warning for ordinary Americans: The crisis in credit markets is far from over, and it increasingly will affect consumers.
"In fact, we believe that what lies ahead will be worse than what is behind us," Whitney and colleagues at Oppenheimer & Co. wrote in a lengthy report last month about threats faced by big national banks, including Bank of America, Wachovia and others.
The warning is scary considering what's already behind us in the credit crisis _ the resignation or firing since last August of CEOs at almost every large commercial or investment bank; the Federal Reserve lowering its benchmark lending rate by 3.25 percentage points; a Fed-brokered deal to sell investment bank Bear Stearns; and weekly auctions of short-term loans from the Fed worth billions of dollars to keep credit markets functioning.
Whitney argues that the worst is still ahead because the financial tools that enabled credit to flow so freely to homeowners and consumers for most of this decade are likely to remain in a prolonged shutdown indefinitely.
"After years of inherently flawed underwriting, banks face the worst yet of the credit crisis _ over $170 billion in write-downs and charge-offs from consumer loans," Whitney told McClatchy. The same kind of losses from housing may be ahead for credit extended to consumers, she said.
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