Exchange traded funds (ETFs) soon might feel the effects from U.S. consumers defaulting on credit-card payments at a significantly higher rate than last year. ETFs iShares Dow Jones U.S. Financial Services (IYG) and iShares KLD Select Social Index (KLD) that have top holdings in Citigroup (C), Bank of America (BAC), J.P. Morgan Chase (JPM), Wells Fargo (WFC) and American Express (AXP) could be affected the most.
The higher default rates suggest that problems in the U.S. subprime mortgage are spreading to other types of credit. Credit-card companies wrote off 4.9% of payments as uncollectible in the first half of 2007, which is almost 30% higher than last year, according to Saskia Scholtes for the Financial Times.
Late payments also rose, and the quarterly payment rate, which measures cardholders capability to repay their debt, dropped for the first time in more than four years. However, Moody’s noted that it is unclear whether the people defaulting on their credit cards are the same people defaulting on their subprime mortgages, according to Seeking Alpha’s Wall Street Breakfast segment.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.