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
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U.S. consumers defaulted on store-branded credit cards at near-record levels during the holiday shopping season, with 2010 likely to bring more of the same trend, according to Fitch Ratings.
Fitch’s December Retail Credit Card Index results show that more than one in every eight dollars of receivables was written off as uncollectable during the November collection period on an annualized basis. Taken with the recent delinquency trends and Fitch’s expectation for unemployment, Fitch expects retail card chargeoffs to remain elevated throughout first half-2010.
This does not bode well for prospects of a robust rebound in retail sales or credit usage in 2010 as the employment situation and economic environment overall continues to weigh on consumers’ spending decisions.
‘We do not foresee any meaningful improvement in the retail card credit quality in the coming months,’ said Managing Director Michael Dean. ‘U.S. consumers remain under stress on a number of fronts, most notably on the employment front, and retail card chargeoffs will continue to reflect those pressures.’
Despite the elevated chargeoff and delinquency measures, Fitch expects retail card ABS ratings to remain stable throughout 2010. Excess spread remains robust, which coupled with loss coverage multiples and other structural protections will shield investors from potential downgrades or early amortization scenarios.
For details see U.S. Retail Credit Card Defaults Hit Near-Record Levels with No Relief in Sight (Premium)
Technorati Tags: (c), (S), (WMT), Best-Buy, Citibank, credit-cards, delinquencies, Federated-Department-Stores, GE, GE Money Bank, HSBC, retailers, Sears, Wal-Mart
Delinquent balances on U.S. credit cards reached record levels and defaults surged higher in December 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, according to Managing Director Michael Dean.
The 60+ day delinquency rate reached an all time high of 4.54% for the December 2009 index, which is based on performance data through November month end. This surpassed the previous high of 4.45% set in June 2009. Chargeoffs crept up to 10.68% from 10.09% in the prior month but remained inside of the record high of 11.52% 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.
From 4Q’08 through 2Q’09, Fitch’s delinquency index rose 42% as the economic environment and employment situation worsened. Chargeoffs subsequently peaked in 3Q’09 with Fitch’s index reaching 11.52% in September 2009 before receding in recent months. While recent trends point to higher chargeoffs, future deterioration is not anticipated to be as severe given that unemployment is expected to plateau near current levels.
Details available here (Premium).
Technorati Tags: credit-cards, defaults, delinquencies
U.S. consumers continue to fall behind and default on their credit cards at record rates and excess spread has contracted to levels not seen in more than 10 years, according to the latest Credit Card Indexes from Fitch Ratings.
The results show Fitch’s three-month excess spread index falling below the 5% threshold for the first time since November 1998.
“At 10.44%, May’s chargeoffs are 62% higher on a year-over-year basis. Meanwhile, 60-plus day delinquencies reversed course to set yet another record high at 4.45% this month after dropping 7 basis points (bps) in May, the first improvement seen in five months.”
Fitch’s Delinquency Index, which measures the percentage of credit card receivables that were reported more than 60 days past due, has increased 23% in the past six months. The 8 bps increase was the smallest monthly increase in the last six months.
Given delinquency and bankruptcy trends, Fitch expects chargeoff increases to decelerate in the coming quarter, although actual improvements are not foreseen at this time.
Technorati Tags: credit card ABS, credit-cards, structured-finance
Now that US financial institutions have dodged a major bullet and most look likely to live to fight another day, the bullets are being removed from the regulatory firing squad one by one. When the financial system was on the brink of total meltdown, there was widespread agreement that only a thorough overhaul of the regulatory system could prevent a recurrence. But now that things have settled down a bit, it looks like changes will be marginal and will leave the alphabet soup of agencies largely intact.
It’s a depressing but not surprising prospect to see the power of the industry lobbies and the turf fighting of the agencies win out over the public good. There’s a real possibility that the “reform” emerging from the worst financial crisis since the depression will be of the worst kind: adding cosmetic changes that make it look like Congress is doing something meaningful but that only increase the regulatory burden without any significant benefit to the system.
To be sure, as Tyler Cowen points out, the Department of Homeland Security has not been a smashing success and argues that more modest reform may not be such a bad thing. Does anybody seriously believe that if you started with a clean slate, you would end up with anything like the current hodge-podge of overlapping and competing financial regulatory bodies? As Felix Salmon writes, the current regulators have clearly failed at their jobs and there’s no reason for entities like the OCC and the OTS to continue to exist.
It is not more regulation that’s needed, but better regulation.
The testimony of Bank of America chief Ken Lewis was the latest example of the increasingly symbiotic relationship between government and Wall Street, as Lewis refused to admit he had been strongarmed by government heavies Ben Bernanke and Hank Paulson into taking over Merrill Lynch, despite strong evidence to the contrary. After all, he still needs their “protection.”
Visitors to Research Recap are clearly not convinced that the problems are solved, as they show strong interest in posts cataloging continuing problems in the financial markets.
McKinsey’s estimate that commercial loans will bear the brunt of US bank losses of some $125 billion a quarter through 2010 was the most popular recent post, along with Moody’s similar projection that US Banks will lose or write down another $470 billion by 2010.
Visitors are also watching closely the continuing downgrades of prime jumbo and Alt-A mortgage backed securities by Standard & Poor’s.
Two reports from CreditSights also drew strong interest: Warrants remain an issue for US banks exiting TARP, and on a more optimistic note, Rise in credit card delinquencies may be peaking.
Technorati Tags: Alt-A, credit-cards, financial-regulation, mortgage-backed-securities, TARP, U.S. banks, Zeitgeist
The rise in US credit card delinquencies may be peaking as the rate of unemployment growth slows, CreditSights says in a new report.
- While charge-offs have been accelerating, the rises in delinquencies in credit card ABS have been slowing in recent months. This slowdown may simply be a seasonal slowdown in delinquencies.
- However, the slowdown coincides with a deceleration in job losses, which have tended to be a leading indicator of charge offs. And so if this slowdown in unemployment growth is sustained it may signal that charge offs are close to peaking.
- The rises in delinquencies coincide with the most substantial falls in credit card debt outstanding as lenders reduce their exposure and households look to deleverage their balance sheets.
Although, the growth in delinquencies may be slowing and may in turn bring a peak in charge offs we do not believe that credit card ABS are necessarily out of the woods.
Technorati Tags: asset-backed-securities, credit card ABS, credit-cards
Credit card providers took sixth place out of 12 industries included in Forrester Research’s Customer Experience Index (CxPi), ending up with an overall “okay” rating of 68%.
The average score for credit card providers increased by one percentage point compared with last year.
USAA came out on top with an “excellent” rating of 91%, followed by two
firms with “good” ratings: American Express and Discover. At the other end of the spectrum, HSBC received a “very poor” rating, while Washington Mutual and Bank of America ended up with “poor” ratings.
Most firms meet consumers’ basic needs, Forrester says in Customer Experience Index 2008 Snapshot: Credit Card Providers When it comes to meeting needs, USAA ended with a near perfect score. American Express also ended up with an “excellent” rating, and five other firms wound up with a “good” rating. HSBC was the only credit card provider with a “poor” rating.
Technorati Tags: (AXP), (bac), (DFS), American Express, Bank-of-America, credit-cards, Discover Financial Services, HSBC, USAA, Washington-Mutual
The National Small Business Administration has released a report detailing how small business is faring in the recession, and things aren’t going well. According to the NSBA 2008 Year-End Economic Report, 91 percent of small businesses surveyed over the last two weeks in December said the national economy today is worse off than five years ago, up significantly from 68 percent in August 2008.
The report found significant decreases in anticipated economic growth for the coming year with a mere 3 percent anticipating growth for the U.S. economy—down from 21 percent in August. The number of small-business owners who cited economic uncertainty as one of their top three challenges was up from 53 percent in August to 75 percent—a 42 percent shift in just four months.
Financing continues to be a problem for small-business owners who reported increased reliance on credit cards—nearly half (49 percent) used credit cards in the past 12 months to finance their business.
Making matters worse, respondents who reported worsening credit card terms increased from 63 percent in August to 69 percent in the December
Click here for the full report.
Technorati Tags: credit-cards, economic-data, financing, small business
It’s not a pretty picture. Of the 31 U.S. finance companies rated by Standard & Poor’s Ratings Services, four have applied to become bank holding companies and 16 have been downgraded over the past two months.
Deteriorating asset quality and increased funding costs weakened earnings, resulting in negative rating actions on several consumer finance companies during the third quarter. Given the economy’s current trajectory, we expect these trends to continue.
S&P warns the sector is likely to continue to struggle, but said that to the extent finance companies can take advantage of government actions aimed at stabilizing them, the outlook might improve.
American Express Co. (NYSE: AXP), CIT Group Inc. (NYSE: CIT) , CapitalSource Inc. (NYSE:CSE), and GMAC LLC have all taken steps to become bank holding companies to gain access to cheaper funding and government debt guarantees.
Losses are expected to accelerate for commercial lenders, S & P said, especially in commercial real estate. In addition,
- Asset quality continues to weigh down finance companies involved in residential mortgage, credit cards and auto loans.
- Some business development companies may struggle to meet minimum net-worth covenants after taking large write-downs on their investment portfolios.
- Asset-backed securities and commercial paper markets remain virtually frozen, leaving businesses to rely on banks.
For details, see “U.S. Finance Companies Seek Shelter from the Storm in the Third Quarter.”
Technorati Tags: (AXP), (CIT), (CSE), ABS, American Express, auto-loans, CapitalSource, CIT Group, credit card ABS, credit crunch, credit-cards, Earnings, finance, GMAC, Real-Estate, structured-finance
