US credit card losses dropped to 9.4% in December after sharply increasing 60 basis points (bps) to 9.9% in November, according to Standard & Poor’s Credit Card Quality Index .
However, S&P views the decline as a temporary pause given the current levels of early- (30-plus days) and late-stage (90-plus days) delinquencies of 5.8 % and 3.1%, respectively. While these delinquency levels remained stable for the last quarter of 2009, they reflect historical highs.
These delinquency rates could cause losses to rise in 2010 from their 2009 average of 9.4%—they may even rise to 10.5%-12.5%, which would be consistent with our chief economist’s baseline and pessimistic unemployment forecasts of 10.4% and 12.1%, respectively, over the next 12 to 15 months. If U.S. bankcard losses reach 10.5%-12.5% this year, the year-over-year increase could range from 12% to 33%.
Credit card performance will likely remain under pressure this year as unemployment and bankruptcies weigh on consumers and their ability to pay off debt. Nevertheless, we anticipate that credit card asset-backed securities (ABS) issuers will continue to exercise tighter risk management to help mitigate volatility and performance deterioration during the current period of stress.
For details, see: U.S. and Canada Credit Card Quality Index Report (Premium)
Technorati Tags: asset-backed-securities, credit card ABS, credit-cards, delinquencies, structured-finance
U.S. credit card asset-backed securities (ABS) performance stabilized in December, with most trusts reporting minimal changes in delinquencies and chargeoffs following record delinquencies in the previous month according to Fitch Ratings.
In addition, credit card ABS trusts excess spread cushions widened further as pricing changes begin to take full effect boosting portfolio yields. Performance changes in two large trusts heavily influenced Fitch’s chargeoff and delinquency index results which should normalize next month.
‘Issuers have implemented policies and modifications to help manage loss and delinquencies that impacted the latest index results, such as loan modifications and payment holidays.’ said Managing Director Michael Dean. ‘Delinquency and loss rates will remain elevated in the coming months to reflect the ongoing stress affecting U.S. consumers, most notably persistently high unemployment levels.’
Additionally, based on its expectation that unemployment rates will hover above 10%, Fitch expects chargeoffs to revisit the 12% level in 2010.
Despite the outlook, credit card ABS ratings are expected to remain stable in 2010. Performance will be strained due to regulatory and legislative changes, which will limit issuers’ ability to employ dynamic, risk-based pricing strategies. Additionally, based on its expectation that unemployment rates will hover above 10%, Fitch expects chargeoffs to revisit the 12% level in 2010.
The Fitch Prime Credit Card Delinquency Index for January eased off of the record high set last month. January’s number, which measures credit card performance through Dec. 31, declined to 4.19%, an improvement of 35 basis points (bps). However, much of that improvement is attributable to just one issuer, Bank of America, which experienced significantly lower early stage delinquencies this month.
Technorati Tags: asset-backed-securities, charge-off rate, credit card ABS, delinquency rate, structured-finance
The Federal Reserve Bank of New York (FRBNY) and the U.S. Treasury initially rolled out the Term Asset-Backed Securities Loan Facility (TALF) program to revive the asset-backed securities (ABS) market, but other sectors are also benefitting from the program, particularly commercial mortgage-backed securities (CMBS), Standard & Poor’s says.
S&P’s latest Quarterly TALF Report (Premium) discusses how the program has played an important role in improving market sentiment toward CMBS and putting the CMBS market on the road to recovery.
“So far, only one new issue CMBS transaction has used the program since the FRBNY accepted CMBS as eligible for TALF,” said credit analyst David Henschke. “That transaction, however, marked a significant turning point because it was the first major U.S. CMBS deal in nearly a year and a half. And it paved the way for two non-TALF CMBS deals, which further promoted price discovery for issuers and investors.”
The FRBNY expanded the TALF program to include newly issued CMBS in June 2009 and legacy CMBS in July 2009. Since July 2009, loan requests under TALF to purchase legacy CMBS have averaged approximately $1.5 billion per month.
Despite this relatively small usage, cash CMBS super-senior spreads in the secondary market have narrowed significantly since the inception of TALF from a high of swaps plus 1,150 basis points (bps) in March 2009 to their current level of swaps plus 435 bps.
In the report, Standard & Poor’s also reviews its rated ABS transactions that were used as collateral for TALF loans during the 11 rounds of TALF funding, including auto loan and lease, credit card, student loan, equipment, and dealer floorplan. The report also compares TALF for ABS with TALF for CMBS.
Technorati Tags: ABS, asset-backed-securities, CMBS, structured-finance, TALF
Delinquent balances on U.S. credit cards reached record levels and defaults surged higher in November 2009, according to the latest Credit Card Index results from Fitch Ratings.
Chargeoffs are poised to trend even higher in the coming months as consumers struggle with debt burdens in the still challenging employment environment.
The 60-plus day delinquency rate reached an all-time high of 4.54% for the December 2009 index, which is based on performance data through the end of November. This surpassed the previous high set in June 2009. Chargeoffs crept up to 10.68% from 10.09% in the prior month but remained inside of the record high set in September 2009.
Despite the unfavorable trends, Fitch continues to expect current ratings of senior credit card ABS tranches to remain stable given available credit enhancement, loss coverage multiples, and structural protections afforded investors. The outlook for subordinate tranches remains negative. Fitch expects U.S. unemployment will peak at 10.4% in second-quarter 2010 and will remain above the 10% threshold throughout 2010.
For details see Credit Card Movers & Shakers.(Premium)
Technorati Tags: asset-backed-securities, credit card, delinquencies, structured-finance
High unemployment expected to continue to drive up delinquency rates.
Fitch Ratings says 60+ day delinquency levels on U.S. prime auto loan ABS rose over 10% to 0.85% in August as consumers continue to struggle with rising unemployment and reduced access to credit.
‘With loss frequency remaining the biggest driver of loss rates on auto ABS, Fitch expects losses to rise further in coming months,’ said Senior Director Hylton Heard. ‘That being said, rising losses should remain in check as the resilient wholesale vehicle market should help mitigate loss severity.’
Prime auto ABS delinquencies of 60+ days posted a 10.4% jump in August over July’s level. The 0.85% rate recorded in August is just below the 10-year record high of 0.87%, recorded in first quarter earlier this year.
As result of rising frequency, default levels are increasing in tandem. Prime annualized net losses (ANL) rose 6.3% in August to 1.85%, vs. July. This was the third consecutive monthly increase for the index. In the historically weak fall months, Fitch expects ANL will approach the 2% level.
Loss severity is currently moderated by rising used vehicle values, helping to slow the rate of increase in loss rates in 2009.
Despite declining asset performance, most senior level bonds continue to perform as expected.
Technorati Tags: asset-backed-securities, auto loan ABS, Auto-Industry, structured-finance, unemployment
Rising unemployment does not augur well for consumer loan performance.
Growing unemployment across Europe, which is a key driver for consumer loan performance, has had a negative impact on the collateral performance of consumer loan asset-backed securities (ABS), according to Moody’s. And based on Moody’s Annual European Consumer Loan ABS Sector Review, the outlook is especially discouraging in Spain.
Selected Highlights:
“To date, the large majority of consumer loan ABS downgrades have occurred in the Spanish market where unemployment is expected to rise to an average of 18.4% in 2009 and 20.7% in 2010, from an average of 11.4% in 2008.”
Moody’s says that it is in the process of re-evaluating its portfolio default expectations for eight Spanish consumer loan ABS transactions where notes were placed under review for downgrade in July 2009. The review process takes into account unemployment growth (experience and expected) as well as current and expected levels of portfolio delinquencies.
Moody’s also anticipates potential further increases in delinquencies, and hence defaults, from unemployed borrowers who currently benefit from state unemployment benefits provided by the Spanish Government for up to two years following job loss.
The rating agency believes that this dynamic may be allowing borrowers to continue making payments following a loss of income, thus delaying arrears from increasing immediately in line with unemployment trends. However, if unemployment growth were to rise well above current projections, it is likely that portfolios will suffer higher defaults than then anticipated and this could also lead to further ratings volatility in the sector.
Consumer loan transactions within other European jurisdictions are broadly performing inline with our expectations.
Technorati Tags: ABS, asset-backed-securities, consumer loans, defaults, Europe, Spain
As U.S. home prices show early signs of stabilization, so are subprime asset values, according to a new Fitch Index of US subprime assets.
Fitch’s total market U.S. subprime Index stood at 8.34 as of Sept. 1. Though higher than the all-time low of 7.27 on May 1, the index is still significantly lower than the opening value of 42.56 on Nov. 1, 2007.
In general, the synthetic subprime market is still seeing more activity than its cash equivalent and hence can be used as an effective proxy for asset values – Fitch Managing Director Thomas Aubrey.
Fitch Solutions says its five new indices, which are presented as cash prices, provide a total market view of all vintages as well as vintage specific indices thus providing a broader insight into the US subprime market.
The indices will be made available within Fitch Solutions ABCDS pricing service (Subscription required) which provides consensus pricing for credit default swaps of asset backed securities (ABCDS) with a complementary benchmark service to provide a derived price for illiquid assets.
Coverage includes:
Residential Mortgage Backed Securities (RMBS)
Commercial Mortgage Backed Securities (CMBS)
Credit Cards
Automobiles
CDOs
U.S. RMBS Subprime Indices
Technorati Tags: asset-backed-securities, auto loan ABS, CDS, commercial mortgage-backed securities, credit card debt, credit-default-swaps, residential mortgage-backed securities, structured-finance, subprime
US and EMEA non-mortgage Asset-backed Securities continue to demonstrate the highest level of rating stability among structured finance instruments and are expected to remain resistant to downgrades, particularly at the ‘AAA’ level, according to Fitch Ratings.
In its , Fitch said during Q209, the performance of US credit card ABS continued to deteriorate with increasing charge-offs and compressing excess spread compared to the prior quarter. However, the ratings on many trusts remained stable as issuers have taken various actions to increase credit enhancement (CE) and utilised the discount option.
Fitch continues to expect current ratings of senior tranches to remain stable given available credit enhancement and structural protection afforded investors.
“The outlook for subordinate tranches becomes increasingly negative, particularly given recent delinquency and personal bankruptcy filing trends.”
Fitch’s Global Structured Finance Quarterly Rating Review covers all Fitch-rated, public, long-term international structured finance.
Technorati Tags: asset-backed-securities, CMBS, commercial mortgage-backed securities, credit card ABS, residential mortgage-backed securities, structured-finance
The U.S. Federal Reserve’s commercial paper funding facility (CPFF) may be siphoning off investment from Europe and prolonging the stagnation of the region’s asset-backed commercial paper market, a new report from Standard & Poor’s suggests. However, planned moves by the Bank of England may bring some assistance to the sector.
“The U.S. ABCP market continues to be deeper than the European one and we have continued to see more European program sponsors issuing in the U.S. ABCP market,” S&P says in its Report card on Structured Finance.“For example, at the end of April 2009, five European conduits were exclusively tapping the U.S. ABCP market.”
With the European ABCP market still in the doldrums, some sponsors are placing most, if not all (apart from a few overnight issues), their paper with the U.S. Federal Reserve’s commercial paper funding facility (CPFF).
“”Although conduit sponsors and the underling finance obligors perceive the fees for using the CPFF as onerous, obligors still value the access to a precious source of liquidity, which we saw especially toward year-end 2008.Some sponsors have indicated to us that they would like to see the European Central Bank (ECB) establish a similar facility to the CPFF since banks can currently only pledge the ECB-eligible paper of certain conduits and there is a still a capital charge attached to it. Sponsors have been making their paper ECB-eligible over the past few months by, among other things, changing their conduit’s jurisdiction and adhering to the short-term European paper (STEP) label.
S&P assesses the Bank of England proposal to purchase ABCP from eligible U.K.-related conduits. The Bank proposes to introduce a secured commercial paper facility to buy ABCP from approved conduit issuers for a limited period of time in the primary and secondary market, thereby promoting liquidity in the secondary market. S&P expects the number of European programs to decrease by 10% by the end of 2009.
We believe that the Bank of England’s proposal is a positive move to support the revival of the ABCP investor market while providing support to U.K. companies. However, as discussed in today’s article, we also foresee certain limitations regarding the proposed scheme.
Technorati Tags: ABCP, asset-backed-securities, Commercial-paper, structured-finance
Prime auto U.S. ABS delinquencies jumped 22% on a monthly basis in May, while net losses improved 17% in May over April clouding expectations for the coming summer months, according to Fitch Ratings. The improvement in net losses was mostly a result of seasonal patterns and losses remain near record high levels.
Prime 60+ days delinquencies rose to 0.72% in May, up from 0.59% in April.
The increase in delinquencies last month was noticeably higher than previous years during this period.
Delinquencies were 26% higher in May versus 2008 levels; they hit a record high of 0.87% in early 2009 but are back off of those levels.
Despite historically high loss rates, the ratings of senior classes of notes continue to perform within expectations, with minimal negative rating actions issued in 2009 to date.
Fitch also says the European auto ABS sector experienced an increased number of negative factors during Q109, including a rise in delinquencies and net losses.
The Fitch 60-180 Delinquency Index (Fitch DI) breached an historic peak in the first quarter, increasing to 1.5% (up 20 basis points compared with Q408). Since December 2007, the Fitch DI has increased by 50 basis points to 1.5% and is not expected to stabilise during the next quarter (Q209).
The Fitch Net Loss Index (Fitch NLI) increased to 0.5% during Q109 (up 40 basis points compared with Q408), but remained within historic levels.
The Fitch Excess Spread Index (Fitch ESI) was slightly lower during the first quarter of the year, and stood at 2.3% (down 20 basis points compared with Q408).
For details see: Tyre Tracks – Fitch European Auto ABS Index.
Technorati Tags: asset-backed-securities, auto-loans, automobiles, structured-finance
