The Coming U.S. (and Canadian?) Loan Crisis

The number of U.S. consumer loans in default has hit a record high, reports the American Bankers Association. The ABA just polished off its first-quarter delinquency report (little late on that one, fellas) and revealed some disturbing results: Of all the consumer loans in America, 3.23% are more than 30 days in arrears. That’s the highest level since at least 1970, when the ABA started keeping track.

Of course, it’s no shocker that things got tough in the first quarter. But what of the most recent three-month stint, during the best of the sucker rally? “The No. 1 driver of delinquencies is job loss,” hints ABA’s chief economist, James Chessen. “When people lose their jobs, they can’t pay their bills. Delinquencies won’t improve until companies start hiring again and we see a significant economic turnaround.”

So practically no one expects the unemployment rate to stop its accent until at least 2010. And just as many are willing to admit there are boatloads of souring loans still on bank balance sheets. Hmmm….

While certainly better off than the U.S., Canada could face a consumer debt crisis of its own, reports the Bank of Canada. In its biannual Financial System Review, the BoC said yesterday that “There has been a further deterioration in the financial position of the Canadian household sector.” The average ratio of debt to income has hit a record level for Canadians… household debt there is averages roughly 140% of disposable income. Here in I.O.U.S.A., it’s closer to 170%. Suffice to say neither ratio is desirable. 

We don’t want to say too much here, but when it comes to a few select Canadian financials, our short analyst Dan Amoss has his finger on the trigger. Stay tuned for more.