Mortgage woes are spreading to other types of loans as the economy weakens and unemployment rises, producing a secondary pressure trend hitting bank earnings, experts said this week, ahead of closely watched results due soon from industry giants including Citigroup Inc.Higher provisions to cover rising losses on consumer loans will likely eat into bank profits in the fourth quarter and beyond. That may squeeze the capital cushions of some banks that already have taken write-downs in the tens of billions of dollars because of exposure to mortgage-related securities.
"The story of this quarter is consumer loans," said Zach Gast, an analyst at The Center for Financial Research and Analysis, a unit of RiskMetrics Group.
Until the middle of last year, consumer loan losses were held in check as house prices climbed, allowing borrowers refinance mortgages or take out home-equity loans and use the cash to pay off credit card bills and auto loans.
But as the subprime-fueled credit crisis erupted in August, such activity ground to a halt. Since then, credit card and auto loan delinquencies have begun to rise and will probably deteriorate further, Gast said.
"The surprise is that that it took this long for the consumer to start struggling," he added.
