Fitch: U.S. Credit Card Defaults Rise for 1st Time in 6 Months; Delinquencies March Lower

NEW YORK--(BUSINESS WIRE)--U.S. credit card ABS chargeoffs reversed course last month, rising for the first time in six months while most other metrics posted further gains, according to the latest Credit Card ABS Index results from Fitch Ratings.

“The chargeoff increase is more reflective of seasonal factors like a rise in tax season bankruptcy filings and less a precursor to worsening credit trends”

"The chargeoff increase is more reflective of seasonal factors like a rise in tax season bankruptcy filings and less a precursor to worsening credit trends," said Managing Director Michael Dean. "Ongoing delinquency improvements are likely to lead to stabilizing, albeit elevated, chargeoff levels."

According to Fitch's Prime Credit Card Chargeoff Index, chargeoffs rose 26 basis points (bps) to 8.31% halting a string of five straight month-over-month improvements. For the month, some of the largest trusts that make up a majority of the index, including Chase, Citibank, and Discover, reported an increase in default rates. Credit card defaults are at a two-year low and down 26% year over year yet they remain 39% above the historical average.

Late stage delinquencies are still trending lower and may soon hit a three-year low. For the 14th straight month, Fitch's 60+ day delinquency index decreased nine bps to 3.11% in March, representing 30% year-over-year improvement. Early stage delinquencies followed suit and decreased another 10 bps to 4%. All trusts that make up Fitch's index have once again reported lower delinquency rates for the month.

Gross yield rebounded and improved for the month of March, increasing 47 bps to 20.97%. With the positive gain, yield performance remains 12% higher than the historical average at inception of 18.69%. Despite the slight increase in chargeoffs, excess spread posted healthier levels compared to the prior month. Monthly excess spread improved 69 bps to 10.57%, while the three month average trended higher with a 20 bps gain to 10.44%. 'With March marking the highest ever three-month average excess spread and already 39% above year-over-year levels, excess spread is likely to remain robust throughout 2011,' said Director Herman Poon.

Monthly payment rate (MPR) fell again for the second straight month, declining 1.16% to 19.21%. Current levels in MPR are still approximately 19% higher than the historical average of 16.21%.

Fitch's Prime Credit Card index was established in 1991 and tracks more than $167 billion of prime credit card ABS backed by approximately $269 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.

Performance in retail credit card ABS was mixed in March after painting a perfect picture during the previous monthly period. Delinquencies, yield, and excess spread posted positive movements, while chargeoffs increased and monthly payment rate slowed. The 30+ day delinquency index maintained course and was held stable at 6.02%, while late stage delinquencies improved seven bps to 4.13%. Retail card delinquencies currently stand at a 30-month low.

Defaults on retail credit card ABS rose after three consecutive months of improvement, increasing 31 bps to 10.95% in March. Despite the blip, retail chargeoffs are at two year lows and are approximately 18% lower year over year.

Gross yield recovered again after a slip in February, and surged ahead with a 2.68% improvement to 26.94%. Excess spread on a monthly and three month average basis both increased, adding 249 bps and 74 bps, respectively, to previous month's levels. Monthly excess spread currently registered at 11.35% with a three month average of 9.66%, a 29-month high. MPR fell slightly, posting a 36 bps decline to 14.33%.

Fitch's Retail Credit Card index tracks more than $38 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.

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.

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

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.