Entries in Credit (7)


Fed Report Shows Consumer Credit Growth in May

Justin Sullivan/Getty Images(WASHINGTON) -- A Federal Reserve report out Monday showed that Americans spent more on credit cards in May, the highest monthly gain in four years. Consumer credit climbed to $2.6 trillion, a more than $17 billion increase, according to the report.  

During the month of May, the report says non-revolving credit, including student loans and auto financing, grew by a seasonally adjusted $9 billion to $1.7 trillion. Revolving credit ballooned by $ 8 billion to $870 billion.

With the economy still floundering, the increase in reliance on plastic is likely also the result of the slowdown -- there are not enough wages to cover expenses.

Stuart Hoffman, chief economist at PNC Financial Services Group, says the report may be the result of student loan debt and not much of an indicator of consumer spending in general. According to the report, student lending appeared to be a major driver for overall credit growth -- up $6.2 billion in May to $464.9 billion.

"This report today shows a little more borrowing, but you now put that in a bigger context with consumers you're still not seeing a lot of job growth and still being cautious. I don't think this represents any kind of a big upside for consumer spending," he says.

Hoffman adds the increases don't seem that large when one considers that, "a lot of students are still borrowing to be able to go to college."

Copyright 2012 ABC News Radio


Moody’s Bank Downgrade May Mean Higher Lending Rates

Scott Eells/Bloomberg via Getty Images(NEW YORK) -- For the second time in a year, Moody’s downgraded 15 global banks. The credit ratings agency downgraded five of the biggest U.S. banks on Thursday, and that may lead to higher rates for consumer and even tighter lending policies.

All 15 banks were downgraded in response to lower bank profitability unlike the last downgrade in November, which was based on Moody’s change in methodology.  Moody’s and Standard & Poor’s ratings help set the rates at which banks can borrow and therefore the rates they can extend to businesses and consumers.

On Friday morning, stocks, led by banks, rallied after the second-worst sell-off of the year on Thursday. Analysts viewed the rally as a sign that Moody’s was off-base in lowering the credit ratings of the banks, which are much stronger financially than they were three years ago.

The Dow Jones Industrial average rose 0.49 percent to 12,635 at mid-morning while the S&P 500 advanced 0.41 percent to 1,331. The Nasdaq composite was up 0.52 percent to 2,874.

The stock prices of the five downgraded U.S. banks jumped on Friday morning.

Shares of Bank of America were up 0.64 percent to $7.87. JPMorgan Chase & Co. shares jumped 2.17 percent to $36.29. Shares of Goldman Sachs Group increased 0.64 percent to $94.50. Citigroup’s stock was up 1.15 percent to $28.15 a share. Morgan Stanley shares increased over 2 percent to $14.25.

On Thursday, Moody’s Global Banking Managing Director Greg Bauer said in a statement that the downgraded banks “have significant exposure to the volatility and risk of outsized losses inherent to capital markets activities.”

“Ultimately, the downgrades are likely to trigger some near-term volatility,” said Jody Lurie, corporate credit analyst at Janney Capital Markets.

In the long term, banks that were downgraded into the triple B range will have higher costs to finance their lending activities. If those banks were actually in need of financing, that may affect retail lending activities, such as mortgages and small business loans. Theoretically, banks that were not downgraded may be able to provide better rates, Lurie said.

“In some ways, Moody’s move is a self-fulfilling prophecy: higher financing costs equals less profitability,” she said.

Copyright 2012 ABC News Radio


Moody's and Fitch Affirm AAA US Rating

Scott Eells/Bloomberg via Getty Images(NEW YORK) -- U.S. stocks continued to slide Tuesday in part on concerns about the global economy, before Moody's affirmed its AAA rating on U.S. sovereign debt but lowered its outlook to "negative." Earlier in the day, Fitch Ratings also affirmed its AAA rating. Economists are now waiting to see if Standard and Poor's will follow suit or downgrade the nation's credit rating.

The Dow Jones Industrial Average dropped 266 points, or 2.19 percent, to 11,867 at the end of the day, while the S&P 500 fell for the seventh straight day, down 2.56 percent to 1,254. It's the S&P's longest slump since 2008.

On Tuesday, the Senate passed an agreement to raise the debt ceiling and avoid a default on U.S. debt, following passage in the House on Monday evening.

"The initial increase of the debt limit by $900 billion and the commitment to raise it by a further $1.2-1.5 trillion by yearend have virtually eliminated the risk of such a default, prompting the confirmation of the rating at Aaa," Moody's stated in a report.

Moody's assigned negative outlook to its rating, saying it could downgrade the U.S. if fiscal discipline weakens in the coming year, further "fiscal consolidation" does not take place in 2013, the economic outlook "deteriorates significantly," or there is an appreciable rise in the government's spending "over and above what is currently expected."

Fitch Ratings confirmed its AAA rating for United States debt over the short-term, but warned of more tough choices coming soon.

"While the agreement is clearly a step in the right direction, the United States, as in much of Europe, must also confront tough choices on tax and spending against a weak economic back drop if the budget deficit and government debt is to be cut to safer levels over the medium term," Fitch said in a statement.

Before Moody's and Fitch's reports were released, traders were focused on a morning report which showed American consumers were spending less during June, the biggest one month drop since 2009.

Copyright 2011 ABC News Radio


The American Debt: Moody's Cites US Debt Limit as a Credit Risk

Medioimages/Photodisc(NEW YORK) -- Moody’s, in its weekly publication on credit and ratings, published a piece Monday suggesting that the statue creating a U.S. debt limit is actually a negative for the nation’s credit rating.

"We think that the way the US government handles the limit, particularly in times of divided government, is credit negative for the US," writes Steven Hess, the VP in charge of U.S. sovereign credit ratings.

“The US statutory debt limit is an uncommon attribute not shared by most sovereign debt issuers in that it is not tied to the budgetary process. As a result, when the government adopts a budget, the financing of the expenditures authorized is not automatically assured.”

Hess points out that Congress has already approved the spending when they voted on continuing resolutions in April -- and knew at the time that 40 percent of the spending would have to be financed through borrowing.

Why do they need to vote on it again? They’ve already said they approve of the spending.

“In the US, the debt limit has not effectively constrained the rise in government debt because Congress regularly raises the debt limit and because the debt limit is not related to the level of expenditures approved by Congress,” writes Hess in the Moody’s note. “However, the legislative process of raising the debt limit creates periodic uncertainty over the government’s ability to meet its obligations. We would reduce our assessment of event risk if the government changed its framework for managing government debt to lessen or eliminate this uncertainty.”

Copyright 2011 ABC News Radio


Obama Administration, Republicans Respond to Moody’s Warning

Medioimages/Photodisc/Thinkstock(WASHINGTON) -- Moody's Investors Service on Thursday threatened to put the U.S. credit rating under review for a possible downgrade if the White House and Congress fail to make progress on increasing the debt limit in the coming weeks, “due to the very small but rising risk of a short-lived default.”

The agency said that the outcome will depend on how negotiations on deficit reduction proceed.

”A credible agreement on substantial deficit reduction would support a continued stable outlook; lack of such an agreement could prompt Moody's to change its outlook to negative on the AAA rating,” read the company press release.

Moody’s added that its analysts did not anticipate this process -- of the White House and Congress coming to an agreement on deficit reduction while agreeing to raise the detail ceiling -- being so difficult.

“(T)he degree of entrenchment into conflicting positions has exceeded expectations,” the Moody’s statement said. “The heightened polarization over the debt limit has increased the odds of a short-lived default. If this situation remains unchanged in coming weeks, Moody's will place the rating under review.”

The Obama administration said that the Moody’s threat backs its position.

Mary Miller, assistant secretary of the Treasury for Financial Markets, said in a statement that the move “simply underscores the need for Congress to move quickly to ensure that the US can meet all of its obligations, while continuing to work on a consensus approach towards long term fiscal balance."

Republicans argued that the threat backed their position since much of the report focused on using this opportunity to get significant deficit reduction.

"This report reinforces the point Republicans have been making all year: an increase in the debt limit without major spending cuts will hurt our economy and destroy jobs,” said House Speaker John Boehner, R-Ohio, in a statement. "This report makes clear that if we let this opportunity pass without real deficit reduction, America’s financial standing will be at risk.  A credible agreement means the spending cuts must exceed the debt limit increase.  The White House needs to get serious right now about dealing with our deficit and debt."

Copyright 2011 ABC News Radio


Moody's Will Review US Credit Rating if No Debt Limit Progress

Hemera Technologies/Thinkstock(NEW YORK) -- In a release Thursday, the Moody's ratings agency said it would put the U.S. credit rating under review if Congress and the Obama administration don't make progress on increasing the debt limit. Treasury is currently posting a U.S. total debt at $14,344,668,281,211.01 -- well above the $14.294 trillion limit, thanks to some "borrow Peter/pay Paul" moves with Federal employee retirement accounts.

"If the debt limit is raised and default avoided, the AAA rating will be maintained," says the press release. “However, the rating outlook will depend on the outcome of negotiations on deficit reduction. A credible agreement on substantial deficit reduction would support a continued stable outlook; lack of such an agreement could prompt Moody's to change its outlook to negative on the AAA rating."

Moody's says the increased political "polarization" over increasing the government's statutory debt limit has increased the chances that Uncle Sam will miss some interest payments -- a default in the parlance of Wall Street.

They put out three scenarios which might play out:

"1. The likelihood that Moody's will place the US government's rating on review for downgrade due to the risk of a short-lived default has increased. Since the risk of continuing stalemate has grown, if progress in negotiations is not evident by the middle of July, such a rating action is likely. The Secretary of the Treasury has indicated that the government will have to drastically reduce expenditure sometime around August 2 if the debt limit is not raised; the initiation of a rating review would precede this date.

2. If a debt-ceiling-related default were to occur, Moody's would likely downgrade the rating shortly thereafter. The extent of and length of time before a downgrade would depend on how factors surrounding the default affect the government's fundamental creditworthiness, including (a) the speed at which the default were cured, (b) an assessment of the effect of the default on long-term Treasury borrowing costs, and (c) measures put in place to prevent a recurrence. However, a rating in the AA range would be the most likely outcome. Any loss to bondholders would likely be minimal or non-existent, as Moody's anticipates that a default would be cured quickly.

3. If default is avoided, the AAA rating would likely be affirmed after any review. Whether the outlook on the rating would be stable or negative would depend upon whether the outcome of the negotiations included meaningful progress toward substantial and credible long-term deficit reduction. Such reduction would imply stabilization within a few years and ultimately a decline in the government's debt ratios, including the ratio of debt to GDP."

Copyright 2011 ABC News Radio


Managing Your Credit Cards: Pay More Than the Minimum Balance

Photo Courtesy - Getty Images(NEW YORK) -- America has a love-hate relationship with credit cards. Many of us use them every day, even as we struggle with the bill payments, the Wall Street Journal's Wendy Bounds said. Bounds suggested a few tips for managing credit cards in order to make the relationship less stressful.

Paying only the minimum can get you into trouble. If you can, pay off the entire balance, or at least more than the minimum monthly balance. By doing that, you can save yourself a lot of money. New government rules mandate that your bill disclose how much paying only the minimum would cost you.

It's important to understand your interest rate, how your billing cycle works and other terms of your credit card agreement. If you don't understand them, call your credit card company and ask for an explanation.

Credit card usage is linked to your credit score, which in turn helps you qualify for loans. If you combine balances, don't close out the old accounts unless the fees are onerous. Longer-held credit cards look better on your credit record. When you open new lines of credit, be careful to space out the applications. Your score can be negatively affected if you make one application after another within a short time frame. It's generally better to keep a few lower balances on several credit cards than to have a large balance on a single card. Try to keep your total balance at no more than 30 percent of your credit card limit.

Try to use cash as often as you can, especially for smaller purchases such as snacks. Studies show that people are more likely to spend more when they use plastic rather than cash. Remember, if you carry a balance, you will be paying interest on those snacks you purchased on your card.

Copyright 2010 ABC News Radio

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