The full, horrible extent of America’s new credit crisis was on show for all to see overnight and US investors finally twigged to it.

US consumer related debt is the next blackspot for US banks and financial groups, even as the dodgy subprime mortgages, leveraged corporate debt and other toxic waste is still extracting a terrible toll on house prices, earnings and corporate reputations.

Quarterly results from American Express and Bank of America show the extent of the problem, and although the Bank of America management is confident the problem won’t get too bad, we should remember they also believed the subprime mess and falling US house prices wouldn’t last for long. They are still with us.

The results from Amex, a lowered forecast from Apple and poor figures from Texas Instruments saw a 27 point fall on the Dow in physical trading become a 112 point fall in futures trading after hours.

Bank of America revealed a 41% drop in quarterly earnings, but “it could have been worse” reverberated through Wall Street dealing rooms and the market jumped, only to run into a rising oil price which regained the $US131 a barrel mark, and knocked the market into the red.

Apple lifted earnings 31%, but forecast lower sales in the next quarter, even with the new iPhone. Texas Instruments found that mobile phone makers weren’t ordering computer chips as quickly as they did in previous quarters, a sign perhaps of slowing sales and rising stocks of phones. Last week’s poor results from Sony Ericsson add weight to that idea.

But it was the nitty gritty of the Bank of America result, and the entire Amex report that dismayed Wall Street.

Amex delivered some ugly news after the market closed. The company missed second quarter profit estimates and withdrew its 2008 earnings guidance, saying the economic environment “has weakened significantly” since it issued its projections in January — “particularly during the month of June.”

“Fallout from a weaker U.S. economy accelerated during June with consumer confidence dropping, unemployment rates moving sharply higher and home prices declining at the fastest rate in decades,” said Kenneth I. Chenault, chairman and CEO said in a statement accompanying the profit announcement: “Consumer spending slowed during the latter part of the quarter and credit indicators deteriorated beyond our expectations.”

American Express was still profitable: it made $US653 million in the quarter, but that was down near 40% from $US1.06 billion made in the second quarter of 2007. That saw the company abandon that earlier forecast of 4%-6% earnings growth for the year.

Amex’s comments were gloomier than those earlier in the day from Bank of America chief Ken Lewis, who said repeatedly that he views the economic slowdown and the bank’s possible credit losses as “manageable.” Well, he would say that. After all, his bank has just bought Countrywide Financial Services, one of the major issuers of subprime dodgy mortgages, for $US2 billion in shares, a deal that will be financed by tax write-offs. Bank of America’s profit fell 41% to $US3.41 billion, from the $US5.76 billion earned a year ago.

But looking at the results, there’s little reason to be as confident as US investors were. The bank’s heartland consumer and small business division bore the brunt of the profit decline. Profits in the division fell 66% thanks to the worsening in conditions in housing and consumer credit markets. Credit cards (as with Amex), small business and car loans are all going bad.

The bank said non-performing assets jumped to $US9.75 billion, or 1.13% of all loans, during the quarter and it was forced to set aside $US5.8 billion during the quarter to account for loans gone bad or that could falter in the future. And the investment banking business wrote another $US1.2 billion off dodgy assets, including mortgage-related securities.

This now raises the question for US financial stocks: if house prices are falling, no one is lending for mortgages, apart from the basket cases, Fannie Mae and Freddie Mac, car sales are falling, wages are not growing and jobs continue to be lost at 75,000 a month or more, where’s the growth going to come in the next year to 18 months?

There are a host of credit card, insurance, banking and consumer finance companies yet to report results. Their outlooks are now worse after the Amex results.

Peter Fray

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