Wednesday, April 28, 2010

Most expensive credit cards

Thanks to high unemployment and rising personal bankruptcies, banks in the credit card business suffered their first losses in decades last year. But bankers need not fret. The rich still love their plastic, and banks are ready to soak them for all they're worth with an array of elite cards--keys to exclusive and expensive privileges most working stiffs can only dream about.Appealing to James Bond wannabes, they come with high annual fees and minimum spending requirements north of $250,000.

They can be used to secure a private jet, rent a yacht at a moment's notice or drop in the VIP tent at the Monaco Grand Prix. Even the cards themselves are different, made with titanium or carbon or embedded with diamond chips.It isn't that the rich are spending that much more than the rest of us. The top 1% of wealthy Americans account for just 4% of all card spending, according to Tower Group research.


This group includes 2 million households with more than $1 million. But they stand a much better chance of being profitable for banks and card companies compared with the mass market. Super elite cards go only to borrowers with stellar credit, easing capital requirements and fear of losses.

"It's the only segment banks have the nerve to market to this year," says Dennis Moroney, a Tower Group consultant.Because high-end card holders have to have top credit scores, banks charge them relatively lower annual interest rates on revolving balances, in the range of 12% to 13%, compared with the trend toward higher rates for mass-market cards, which for many has jumped from the mid-teens to over 20%, says Moroney.The most recognized super elite brand:

American Express and its Centurion Card, aka The Black Card. The company won't reveal many details about the invitation-only program, giving rise to websites like luxuryplastic.com that have an almost slavish devotion to Black Card lore.

The annual spending minimum is said to be $250,000. Amex will only say the annual fee is $2,500 and the fee to open the account is $5,000.Rivals have tried with varying degrees of success to compete with the Centurion card. Coutts & Co., a private bank division of Royal Bank of Scotland that only bothers with the crustiest of the upper crust has a few hundred invitation only purple card customers, said to include Queen Elizabeth II.

A Santa Barbara, Calif., company called Stratus has an invitation-only White Card program it is getting ready to introduce in Europe through a major Swiss bank.Citigroup and Bank of America offer high-end cards through their private banking and private client businesses, offering perks for international travel, full-time concierge service, and rewards for purchases. Citi's Ultima card, which is only offered in Asia, advertises perks like exclusive one-day use of a 80-foot luxury Ferretti yacht; 48-hour use of a Maserati 4200 Spyder; and access to a chauffer-driven Bentley limousine throughout the day. The Citibank Chairman's Card currently offers reduced fees and flight time credits for Marquis Jet/Luxury Private Jet Services and complimentary breakfast for two and room upgrades at Ritz Carlton, Mandarin Oriental, Fairmont Hotels and others

The Visa Infinite is issued outside the U.S., offering a variety of concierge and travel insurance, assistance perks, shopping and cultural event discounts. South African cardholders currently are being offered a trip through wine country with a noted wine maker. U.K. cardholders are being offered 20% off the penthouse at a boutique Covent Garden hotel.

The Black Visa card, offered though Barclays, is available to just 1% of U.S. residents "to ensure the highest caliber of personal service is provided to every cardmember," according to its website. The fee, $495, is comparably lower than Centurion. Barclays boasts the card is made with carbon and is "guaranteed to get you noticed." Or mugged, maybe.

The trend will likely grow as banks continue to feel pressure from card lending. Average outstanding balances overall are down 12% in December alone, Tower Group says. Delinquencies are rising, up to 6% of loans, while charge-off rates are approaching 10%. An estimated $3.6 trillion worth of credit will sit unused this year. Banks are raising rates and pulling in credit lines, in some cases canceling cards for borrowers who fall behind. For the first time since the 1980s banks lost money last year on credit cards. In 2009 return on assets for the 23 largest card issuers was a negative 0.29%.

Beyond that, new accounting rules changed the way banks package and sell credit card loans in bundles called securitisations, an activity that has been slow to restart since the depths of the financial crisis. Banks now have to hold more capital against credit card loans and have to retain more loans on their books, a risky business considering delinquency trends. That makes prime borrowers all the more attractive.

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