New credit card offers have stalled in the current "terrorism enhanced recession". However, with travel related credit cards out of favor, some card issuers have found a niche in patriotic cards. Discover, PNC Bank, and 5Star Bank have launched flag cards over the past several weeks to tap into the rising nationalism.

Pittsburgh-based PNC Bank this month unveiled the USA Flag VISA Check Card. Customers may obtain the card for a $5 donation to the American Red Cross Disaster Relief Fund. PNC is also donating $1 from every order of the bank’s "Pride in America" flag checks to the United Way’s September 11th Relief Fund.

5Star Bank, formerly known AFBA Bank, launched two United We Stand bank credit cards. The 5Star patriotic cards offers applicants nationwide, the choice of a no-annual-fee VISA or MasterCard with interest rates ranging from 10.9% to 16.9%, or a $35 annual fee card with APRs ranging from 8.9% to 14.9%.

In June, Discover began heavily promoting its series of American Flag Cards and has since added a disaster relief funding program. Discover Card is making a donation for every transaction Discover cardholders make until the goal of $5 million is achieved. Discover cardholders will also be able to donate their annual Cashback Bonus awards to the relief funds. The Discover American Flag Card was launched in 1999. Discover's most recent offer for the American Flag Platinum card includes a 1.7% introductory APR on balance transfers, that may also apply to new purchases.

Once caveat to the new flag cards: you might not want to take them on an overseas trip.

September and October are considered pivotal marketing months for credit cards, coming just ahead of the busiest consumer spending time of the year. September was the launch month for General Motors MasterCard in 1992. In 1993 and 1996 Chase Manhattan introduced two major co-branded cards. In 1999 and 2000, September was the month for smart card introductions in the USA. In September 1999, American Express launched its smart Blue card and last September VISA announced its smart VISA card with three U.S. issuers.

        SEPTEMBER  CREDIT  CARD  LAUNCHES
           92-Household/General Motors MasterCard
           93-Chase/Shell MasterCard 
           94- American Express True Grace
           95- Discover Bravo
           96- Chase/Wal-Mart MasterCard 
           97- World MasterCard
           98- BankAmericard returns
           99- American Express Blue
           00- smart VISA
             Source: CardTrak 

TERRORISM COSTS

American Express' credit card division reported that its net income was down 51% from the third quarter. Most of the reduced earnings are the result of restructuring charges, but $87 million worth is directly related to the events of September 11th. AmEx says charge volume fell 3% as travel sales dropped 28%, mainly the result of terrorist attacks on the USA. On top of the 9/11 impact, AmEx is experiencing a 23% increase in delinquency and a 30% jump in net charge-offs. Meanwhile The Spiegel Group said that due to the interruption in the postal service, the company's credit card bank, First Consumers National Bank, extended its grace period for assessing finance charges and fees to avoid unfairly penalizing customers. FCNB backdated payments received the week following the terrorist attacks and waived certain fees, including late-payment fees. FCNB says charge volume is off by more than 5%.

SUB-PRIME FALLOUT

The nation's leading issuer of credit cards to the not-so-creditworthy, has taken a hard fall. Providian reported a huge decline in profits for the third quarter, from $200 million last year to $57 million for this year. As a result, Providian's top executive is stepping down, and the issuer is launching an action plan that includes a shift away from sub-prime cards. The company's stock is now trading around $4 per share compared to $64 per share in January of this year. The managed net credit loss rate for the third quarter was 10.33%, versus 7.61% for the third quarter of 2000. The 30+ day delinquency rate increased to 8.66% from 6.71% one year ago. Providian's action plan includes the suspension of lending to the highest risk segments and selectively re-pricing loans that exhibit increased risk levels. The Company has reduced line of credit increase programs in higher loss segments by tightening eligibility criteria. Providian will also focus marketing dollars toward the middle market segment of 60 million consumers and will initiate an expense reduction review program.

Following the stunning fall of Providian last week, the borrowing costs of sub-prime specialists such as Metris/Direct Merchants Bank are likely to rise even more. The asset-backed securities market has already sent signals that yield spreads will rise further. Earlier this month a triple-A rated tranche supported by sub-prime credit card receivables priced at LIBOR +35 bps compared to a similar sub-prime offering in August that was priced at LIBOR +23 bps. With last week's revelations from Providian, yield spreads for sub-prime card bonds will likely increase at least 10 bps. Currently there are approximately $25 billion in sub-prime credit card asset-backed securities. Providian's common stock is now trading at less than $5 per share compared to a January high of $64 per share.

Four shareholder lawsuits were filed in the wake of the collapse of Providian's stock price. The complaints allege that Providian failed to tell investors that it had changed from a policy and practice of immediately writing-off receivables upon receipt of electronic notification that customers had filed for bankruptcy to a policy and practice of accumulating or "batching" bankruptcy notifications and then writing off those receivables once per month. That change, which occurred in late June, allowed Providian to defer recognition of some $30 million in charge-offs from the second to the third quarter of 2001. As a result, the company's reported earnings for the second quarter were inflated by six cents per share, and its managed charge-off rate was understated by 40 basis points. The complaint also alleges that three top officers of the company sold roughly $22 million worth of stock at artificially inflated prices.

ONLINE BOON

Badly shaken by the September 11th events, consumer confidence is rebounding significantly based on the findings of a special Yahoo!/ACNielsen Internet Confidence Survey. The use of the Internet is also growing significantly in the wake of the tragedies. In the Northeast, the region hardest hit by the tragedy, the Index level is up 34 points, a dramatic increase since the last survey which was fielded just before September 11. Overall, the Index jumped nine points in the six-week period between the early September edition and the October special edition of the study. The Index also found more Internet users nationwide plan to shop online during the fourth quarter (60% versus 54%) and will spend $1 billion more on holiday related spending ($12.4 billion) than previously projected. Even with security issues dominating news headlines, 84% of Internet users firmly reject the notion that they intend to shop online due to concerns about shopping in large public places. Instead, the findings confirm that users’ now have increased levels of comfort with the online medium as they turned to the Internet as never before for news updates and communication services.