Weak economy set to hit credit card companies hard

By Juan Jose Lagorio and Dan Wilchins

NEW YORK (Reuters) - U.S. credit card delinquencies are rising and the credit card issuers could be in for a lot of agony.

Expectations that cash-strapped consumers and businesses will default on their credit card balances in greater numbers are forcing lenders to reduce consumer credit lines, cut back on signing up new customers and raise fees.

But even these, in some cases drastic moves, are likely to be too late to save the credit card issuers from substantial credit losses.

"The bottom line is consumers have too much debt, they're going to have to scale it back and that's a painful process that will take time," said Walter Todd, portfolio manager at Greenwood Capital Associates.

Hardest hit are likely to be Discover Financial Services and American Express Co, given their greater reliance on the credit card industry and limited access to funds, in comparison with big banks such as Citigroup Inc or Bank of America Corp, said James Ellman, president at hedge fund Seacliff Capital.

Less affected will be Visa Inc and MasterCard Inc because they only process transactions and do not lend money. Furthermore, the world's two biggest credit card issuers have continued benefiting from the growth of payments transactions, particularly outside the United States.

What is certain is that any pullback in the availability of credit will only further strain an economy already hurt by the slide in home prices and wider credit crisis.

"If consumers aren't spending as much, it's hard to have economic growth. Credit is like oxygen for the economy," said Sung Won Sohn, professor of economics at California State University-Channel Islands.