Fitch: Good Times Continue to Roll for U.S. Credit Card ABS

NEW YORK--(BUSINESS WIRE)--With U.S. consumer credit quality continuing to rebound, U.S. credit card ABS performance registered positive gains across the board for the second straight month, according to the latest Credit Card ABS Index results from Fitch Ratings.

“Chargeoffs are still above historical averages and will likely remain at elevated levels until we see more meaningful improvement on the labor front.”

All variables, including chargeoffs, delinquencies, yield, monthly payment rate (MPR) and excess spread all improved again during the December collection period. Credit card defaults dropped to a 23-month low, while delinquencies fell to a level not seen in 27 months. The results bode well for the coming months.

"Lower chargeoffs are likely throughout the rest of the first quarter," said Managing Director Michael Dean. That said, "Chargeoffs are still above historical averages and will likely remain at elevated levels until we see more meaningful improvement on the labor front."

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 January marked the fourth straight month-over-month improvement, decreasing another 62 basis points (bps) to 8.37% during the month. The decline represents close to a two-year low and chargeoffs are now down 18% year over year. The largest trusts that make up the majority of the index, including Bank of America, Capital One, Chase, Citibank, and Discover, each reported sizeable monthly improvements in default rates.

Late stage delinquencies trended lower for the 12-straight month period. In fact, 'late stage delinquencies fell to an historic 27-month low, which likely sets the stage for continued loss improvement in the coming months,' said Director Herman Poon. Fitch's 60+ day delinquency index decreased another 14 bps to 3.23%. Early stage delinquencies also declined, with 30+ day delinquencies decreasing 36 bps to 4.18% after a temporary uptick the prior month. For the month, all trusts that make up Fitch's index reported lower delinquency rates.

Gross yield improved for the second consecutive month after a momentary slip last year while maintaining the sixth highest level ever. Gross yield increased to 21.98%, a 15 bps gain and remains 18% higher than the historical average at inception of 18.67%.

Accordingly, excess spread results followed suit as the improvement of yield and chargeoffs continue its positive momentum. Monthly excess spread increased another 71 bps to 10.82%, while the three month average improves by 26 bps to 10.26%. This marks another all time high and is 36% higher year over year. Consistent with seasonal patterns, MPR rebounded, surging ahead 175 bps to 20.81% and sets a 40-month high.

Fitch's Prime Credit Card index was established in 1991 and tracks more than $177 billion of prime credit card ABS backed by approximately $284 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.

Similar to the prime index, more improvements with the exception of yield and excess spread, also showed up in retail credit card ABS. Both early and late stage delinquencies, along with chargeoffs, all posted monthly improvements in January. The 30+ day and 60+ day delinquency index both registered an improvement of 28 bps and 33 bps to 6.14% and 6.18%, respectively. Late stage delinquencies currently are at a 28-month low. Chargeoffs fell to a 25-month low, posting another 79-bp decline for the month.

Gross yield has been somewhat volatile as of late, worsening after a quick recovery last month. For the month, yield slipped 137 bps to 23.97%. Regulatory changes which curtailed late and over limit fees, which were a significant revenue source for retail cards have begun to reflect this performance. Excess spread on a one and three month average basis fell slightly, with the latter decreasing a marginal 21 bps to 8.36%,. MPR also maintained course, improving for the second straight month another 86 bps to 14.66%.

Fitch's Retail Credit Card index tracks more than $41 billion of retail or private label credit card ABS backed by approximately $55 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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