Fitch: Mixed Results for Prime U.S. Credit Card ABS; Retail Cards Gain Momentum

NEW YORK--(BUSINESS WIRE)--Although collateral performance was somewhat mixed this month, U.S. consumer credit quality maintained course after extending year-long plus improvements, according to the latest Credit Card ABS Index results from Fitch Ratings.

Credit card defaults and delinquencies fell again while yield, monthly payment rate (MPR) and excess spread dipped during the January collection period. 'Chargeoffs are now at a two-year low, while delinquencies have decreased for 15 straight months,' said Managing Director Michael Dean.

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 showed a further decline in February and registered the fifth consecutive month-over-month improvement, decreasing another 32 basis points (bps) to 8.05% during the month. Defaults are at the lowest levels since February 2009 and are down 29% year over year. This decline also represents a 30% drop from its peak during September 2009. For the second straight month, the largest trusts that make up most of the index, including Bank of America, Capital One, Chase, Citibank, and Discover, each reported monthly improvements in default rates.

According to Fitch's 60+ day delinquency index, late stage delinquencies remained relatively stable and recorded a marginal three bps improvement to 3.20%. Marking a 13 consecutive monthly decline, this delinquency level for February is also 29% lower year over year. Similarly, early stage delinquencies improved, with 30+ day delinquencies decreasing another 10 bps to 4.10%.

On the other hand, gross yield retracted after a two consecutive month gain, decreasing 1.48% to 20.50% in February. This is the first time in 12 months where yield has decreased below the 20% mark. However, it still remains 10% above the historical average of 18.68%. 'With certain regulatory and legislative changes now in place, Fitch expects yields to decline up to 10% in the coming months,' said Director Herman Poon.

Despite the continued improvement in defaults, the decline of yield during the month impacted and drove the level of excess spread lower. Monthly excess spread decreased 94 bps to 9.88%, while the three month average remained relatively flat with a marginal drop of only two bps to 10.24%. This average, despite the mere slip, still represents the second highest level historically and is 41% higher when compared to the same period last year. Meanwhile, monthly payment rate slowed in February, falling 44 bps to 20.37%. However, current MPR performance is 26% higher than the historical average of 16.20%.

Fitch's Prime Credit Card index was established in 1991 and tracks more than $172 billion of prime credit card ABS backed by approximately $271 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, etc.

Highlighted by positive across-the-board trends, retail credit card ABS gained momentum during the month of February. Along with improving early stage and stable late stage delinquencies, all collateral performance metrics posted month over month improvements. The 30+ day delinquency index registered a decrease of another 12 bps to 6.02%, while late stage delinquencies experienced a small uptick of two bps but remained relatively stable at a two year low of 4.20%. Chargeoffs continue to fall, registering another 44 bp decline for the month. Retail chargeoffs are 15% lower year over year and have reached levels not seen since the beginning of 2009.

Gross yield continues its ups and downs, this month faring better after a slip in January. For the month, yield increased 29 bps to 24.26%. Three month average excess spread rose, adding 56 bps to a level of 8.92% and posting a year over year 18% improvement. MPR maintained stability and improved marginally, recording a three consecutive month increase to 14.69%.

Fitch's Retail Credit Card index tracks more than $40 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 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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