Fitch: Chargeoffs & Delinquencies Fall for Prime U.S. Credit Card ABS; Retail Mixed

NEW YORK--(BUSINESS WIRE)--Despite mixed collateral performance for credit card ABS, improving U.S. consumer credit quality continues to gain momentum, according to the latest Credit Card Performance Indices from Fitch Ratings.

Credit card defaults and delinquencies fell again while yield and monthly payment rate (MPR) dipped during the April collection period. Three month average excess spread also improved at the same time.

'Chargeoffs are diverging from persistently high unemployment and underemployment rates due partly to tighter underwriting and U.S. consumers chipping away at their debt levels,' said Michael Dean. 'These positive trends point to further improvements in credit quality measures and credit card ABS performance as we enter the second half of the year.'

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 May and registered the second consecutive month-over-month improvement, decreasing another 46 basis points (bps) to 7.42% during the month. Defaults are at similar levels last seen in February 2009 and are down 33% year over year. This decline also represents a 36% drop from its peak during September 2009.

According to Fitch's 60+ day delinquency index, late stage delinquencies fell once again and recorded a 18 bps improvement to 2.75%. Marking a 16 consecutive monthly decline, this delinquency level for May is 34% lower year over year. Similarly, early stage delinquencies improved, with 30+ day delinquencies decreasing another 27 bps to 3.54%.

On the other hand, gross yield retracted after a two consecutive month gain, decreasing 1.81% to 20.09% in May. This is the first time in 18 months where yield has decreased close to the 20% mark. However, it still remains approximately 7% above the historical average of 18.70%. 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 dropped sharply 1.52% to 10.04%, but the three month average remained relatively flat with a marginal increase of only four bps to 10.72%. This average represents another new historical high and is 29% higher when compared to the same period last year.

'Yield and excess spread are likely to decrease 2% to 3% in the coming months as the effects of the discount options continue to abate,' said Senior Director Cynthia Ullrich, 'However, excess spread is currently at record highs and will easily absorb the decrease so no rating actions are anticipated.'

Fitch's Prime Credit Card index was established in 1991 and tracks more than $158 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.

Fitch's retail credit card index exhibited mixed results in the month of May. There was across-the-board performance deterioration with the exception of delinquencies and three-month excess spread. Chargeoffs increased 17 bps to 10.59%, while gross yield declined for the second straight month, posting another 52 bps decline to 25.88%. At the same time, MPR slowed in May and dropped 1.34% to 14.32%. The only improvement during the month was marked by both early (down 36 bps) and late stage (21 bps lower) delinquencies.

Fitch's Retail Credit Card index tracks more than $32 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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