Fitch: 2011 Begins On Strong Note for U.S. Credit Card ABS

NEW YORK--(BUSINESS WIRE)--U.S. credit card ABS collateral performance measures began the new year with continued across-the-board improvements in performance, according to the latest index results from Fitch Ratings.

Chargeoffs, delinquencies, and excess spread all improved to extend the positive trends that began last summer. Riding a year-long string of improving delinquency trends, chargeoffs fell below 9% for the first time in 20 months helping excess spread levels top 10% for the first time ever.

'Though still elevated, credit trends are pointing in the right direction for U.S. card portfolios,' said Managing Director Michael Dean. 'Further gains on the labor front could drive more meaningful consumer credit quality improvement in first half 2011.'

ABS ratings on both prime and retail credit card trusts are expected to remain stable given available credit enhancement, loss coverage multiples, and structural protections afforded investors.

Fitch's Prime Credit Card Chargeoff Index for December dropped to 8.99% for the period, which covers the November collection period. The chargeoff index is now 238 basis points (bps) lower than the all time high of 11.37% set in February 2010 and is down 16% year over year. Chargeoff rates remain persistently high by historical standards, as the index averaged just over 6% for much of the last 20 years.

Late stage delinquencies trended improved by six bps to 3.37% while 30+ day delinquencies increased 3bps to 4.54%. In fact, 'late stage credit card delinquencies have improved by 26% since last year,' said Senior Director Cynthia Ullrich.

Gross yield ticked up by three bps to 21.83%, registering the 13th consecutive month of yield in excess of 20%. Gross yield has averaged 18.65% since inception and has been particularly strong since regulatory reforms changing the issuers' pricing strategies and trusts enacted the discount option to shelter the trusts from high chargeoffs.

The robust yield generation and improving chargeoff situation, combined with a low cost of funds resulted in a record high three month average excess spread of 10%, which is 47% higher during the same period in 2009. Monthly payment rate (MPR) fell 17bps to 19.06%, which is consistent with seasonal patterns, yet still back above the long-term average of 16%.

Fitch's Prime Credit Card index was established in 1991 and tracks more than $182 billion of prime credit card ABS backed by approximately $278 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.

Retail credit card ABS showed a 91 bp improvement in chargeoffs to 11.87% following last month's blip caused by a Citibank policy change. Both early and late stage delinquencies continue to show modest improvement.

Gross yield recovered after a slip last month, improving from 24.80% to 25.34%. On a year over year basis, gross yield is 90 bps lower, reflecting regulatory changes which curtailed late and overlimit fees which were a significant revenue source for retail cards. MPR was 13.8%, tracking closely to the long-term average of 13.5%. Excess spread on a three-month average basis was 8.57%, which is approximately 6% 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 $52 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.

Additional information is available at 'www.fitchratings.com'.

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