Fitch: U.S. Credit Card Chargeoffs Pass 10%; Delinquencies Hit 23-Month Low

NEW YORK--(BUSINESS WIRE)--U.S. credit card ABS chargeoffs once again crossed the 10% threshold while delinquencies improved for the eighth straight month, according to the latest Credit Card Index results from Fitch Ratings. Contrary to the prior month, the outcome was broadly driven with all major card issuers reporting higher chargeoffs.

'With defaults still elevated and unemployment hovering near 10%, consumer credit quality measures will remain stressed,' said Managing Director Michael Dean. 'Absent any meaningful improvement to the employment situation, chargeoffs will remain high.'

Senior credit card ABS ratings are expected to remain stable given available credit enhancement, loss coverage multiples, and structural protections afforded investors. The outlook for subordinate tranches remains moderately more negative.

Following a 16-month low last month, Fitch's Prime Credit Card Chargeoff Index surpassed the 10% mark for the August collection period. The increase was more than half a percentage point to 10.37%, a 58 basis point (bp) increase from the previous month. The larger trusts that make up the majority of the index, including Bank of America, Chase, Capital One, Citibank and Discover, all reported higher default rates for the month.

Conversely, late stage delinquencies are still trending and may soon reach a two-year low. For the eighth straight month, Fitch's 60+ day delinquency index decreased, this time by another 49 bps (to 3.27% in August). Early stage delinquencies registered a bigger decline, with 30+ day delinquencies improving by another 66 bps to 4.34%. This month, every credit card issuer that makes up Fitch's prime index reported lower delinquency rates.

Monthly excess spread narrowed in August as it declined 51 bps to 9.48%, a result of increased chargeoffs during the same period. However, the three-month average excess spread further improved another 28 bps during the month to 9.55%. 'With another record high this month, excess spread has nearly doubled and is 92% higher than the same period last year.' said Director Herman Poon. 'Roughly 4.18% of the overall three-month excess percentage can be attributed to discounting by the major issuers.'

Monthly payment rate (MPR) performance continues to be stable, with another marginal increase of nine bps in August and approaching close to the 20% mark. This level, last exhibited in 2007, represented a 9% increase compared to the same period last year. A healthier consumer confidence in the U.S. remains the driver to a faster payment rate.

Gross yield rebounded and improved for the month of August, maintaining the third highest level historically. Gross yield increased to 22.65%, a 17-bp gain and remained 15% higher year over year. The results of discount option and repricing initiatives from different issuers continue to inflate yield performance.

Fitch's Prime Credit Card index was established in 1991 and tracks more than $208 billion of prime credit card ABS backed by approximately $292 billion of principal receivables. The index is primarily comprised of general purpose portfolios originated by institutions such as Bank of America, Citibank, Chase, Capital One, Discover, HSBC, etc.

Performance in retail credit card ABS painted a similar picture to the prime index for the August collection period, with stable delinquencies but increased chargeoffs compared to the prior month. Late payments remained the same for the month while defaults jumped three consecutive monthly improvements. Late stage delinquencies for August stayed at 4.65%, maintaining record lows, while early stage delinquencies declining 10 bps to 6.61%. Chargeoffs worsened with a 17 bps increase to 11.91%.

Gross yield surged ahead after two months of decline and registered a 96-bp jump to 26.22%. MPR performance slipped again, declining 36 bps to 13.81%.

Monthly excess spread continues to improve for the second straight month with a significant increase of 118 bps to 9.48%. Similarly, the three-month average excess spread improved 46 bps to 8.40%. This level is approximately 6.5% higher compared to the same period last year.

Fitch's Retail Credit Card index tracks more than $41 billion of retail or private label credit card ABS backed by approximately $53 billion of principal receivables. The index is primarily comprised of private label portfolios originated and serviced by Citibank (South Dakota) N.A., GE Money Bank, HSBC Bank Nevada, N.A. and World Financial Network National Bank. More than 165 retailers are incorporated including Wal-Mart, Sears, Home Depot, Federated, Loews, J.C. Penney, Limited Brands, Best Buy, Lane Bryant and Dillard's, among others.

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