Banks Face Mountain of Plastic

Moody's is also concerned that large credit card-related businesses could be hurt by the myriad of regulatory initiatives proposed by the Federal Reserve, the Office of Thrift Supervision, the National Credit Union Association, even within Congress, that would subject them to heightened scrutiny regarding credit card lending practices, high and/or unnecessary fees, and customer disclosures.

Seattle-based WaMu's managed net losses for the credit card portfolio rose more than 200 basis points to 9.32% in the first quarter, compared to 6.90% at the end of last year. WaMu paid $6.1 billion for credit card issuer, Providian Financial, in 2005.

"[W]e are seeing some stress [in the card portfolio] in certain parts of the country where there is a significant downturn in housing prices and higher mortgage delinquencies," WaMu's president Stephen Rotella said during an earnings call last month. "We were seeing that starting late last year and in fact, we took a number of actions both on new loans coming in and on credit line increases and in fact, freezing them which is why our receivables are down in the first quarter."

Rotella estimated card losses in the range of 9.5% to 10.5% for the year - based on an unemployment rate of 6%.

"Clearly this portfolio, like most credit card portfolios, has a pretty strong correlation to unemployment, so if we were to see the general economy slip in to a higher level of unemployment, we might expect those losses to increase above that level," he said.