Show no interest in credit card company
.floatimg-left-hort { float:left; } .floatimg-left-caption-hort { float:left; margin-bottom:10px; width:300px; margin-right:10px; clear:left;} .floatimg-left-vert { float:left; margin-top:10px; margin-right:15px; width:200px;} .floatimg-left-caption-vert { float:left; margin-right:10px; margin-bottom:10px; font-size: 12px; width:200px;} .floatimg-right-hort { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 300px;} .floatimg-right-caption-hort { float:left; margin-right:10px; margin-bottom:10px; width: 300px; font-size: 12px; } .floatimg-right-vert { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px;} .floatimg-right-caption-vert { float:left; margin-right:10px; margin-bottom:10px; width: 200px; font-size: 12px; } .floatimgright-sidebar { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px; border-top-style: double; border-top-color: black; border-bottom-style: double; border-bottom-color: black;} .floatimgright-sidebar p { line-height: 115%; text-indent: 10px; } .floatimgright-sidebar h4 { font-variant:small-caps; } .pullquote { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 150px; background: url(http://www.dmbusinessdaily.com/DAILY/editorial/extras/closequote.gif) no-repeat bottom right !important ; line-height: 150%; font-size: 125%; border-top: 1px solid; border-bottom: 1px solid;} .floatvidleft { float:left; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} .floatvidright { float:right; margin-bottom:10px; width:325px; margin-right:10px; clear:left;}
Dear Mr. Berko:
I received an early retirement bonus from my employer, and I’m thinking of putting $48,000 of it into the 7 percent, three-year notes of Advanta Corp. They also have a 9 percent, 10-year note that I’d consider. Please tell me what you think and whether I would be better off with the 9 percent notes or the 7 percent notes or if I should buy $24,000 of the 7 percent notes and $24,000 of the 9 percent notes. A couple of friends bought those notes with their retirement bonuses, and they think it would be good for me to do it, too. They bought the stock, too, and they think I should.
S.P., Bethlehem, Pa.
Dear S.P.:
Well, Hoagy Carmichael! Either your friends were smoking dope and doing mushrooms when they bought those things or were drunker than Cootie Brown. With idiot friends like them, you have my sincere condolences. Those guys are dumber than a second coat of paint.
Advanta (ADVNB-$3.80) provides MasterCard and Visa accounts to small businesses and business professionals, giving approved customers access, via banks and merchants, to unsecured business credit lines. ADVNP, the sixth-largest credit card issuer, also offers credit insurance products, various payment waiver agreement plans (disability, loss of life, job, business interruption, etc.), money market accounts and certificates of deposit. Dennis Alter is Advanta’s chairman and CEO. He is also the company’s alter ego, according to a couple of ADVNB folks at its headquarters in Spring House, Pa.
Not a particularly well-run company, Advanta’s earnings have declined in the last two years, and several brokerages reckon that the company will report a loss for 2008 and 2009. Meanwhile, ADVNB’s return on assets, its return on investment and its return on equity have fallen by 50 percent during the past five years and total operating expenses have increased disproportionately more than revenue growth.
You’ve also got to know that the fundamental outlook for the credit card business is roundly negative. Though credit quality is at near historically low levels, I suspect it will continue to weaken over the next 12 to 18 months. Loan levels may continue to grow, and some card issuers are beginning to raise rates, but default rates will rise to perhaps as high as 9 percent in the next 12 months.
Competition in this business is enormously intense, pricing pressures will continue to mount and profitability will be seriously challenged. I suspect that some of the smaller card companies could find themselves unable to compete with the likes of Capital One, Bank of America and Citigroup, so we could see some consolidation in the industry. This is a very mature industry, and the only growth areas still remaining are North Korea, Angola, Yemen, Baluchistan, Qatar, Cuba, Miami and Vietnam.
ADVNB has been in business for more than 50 years and has never defaulted on any of the notes issued to the public. Though that’s fine and dandy, I’m not comfortable projecting ADVNB’s past success into the future. Certainly a three-year note with a 7 percent annual yield, 6.77 percent simple interest, is attractive and so is 9 percent for 10 years. But if you had to sell all or part of that note, please ask yourself one question: “To whom would I sell it?” If you don’t have a ready answer, then perhaps you shouldn’t buy it. You can get 5 percent for a year at various banks or savings and loans, which is where I suggest you place this money. One year from now when that CD matures, I’m fairly certain you will be able to renew it at a much higher rate.
You must be especially mindful that you’re retired and no longer a working American. If you lose some of that money, you don’t have the ability to earn it back. And though those returns are attractive, you must recognize at your age and stage in life that losing an opportunity is a much less regrettable alternative than losing money. “Better safe than sorry,” as Noah said to his sons when they boarded the ark.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@comcast.net.
Trending News
