Fitch: U.S. Credit Card ABS Still in Cruise Control Entering 2H'11

NEW YORK--(BUSINESS WIRE)--U.S credit card defaults dropped to their lowest levels since early-2008, while delinquencies fell to levels not seen in close to four years, according to the latest Credit Card Performance Index results from Fitch Ratings.

'Credit card collateral saw positive across the board gains for the fourth time in six months,' said Senior Director Cynthia Ullrich. 'Future credit card performance looks promising, with Fitch anticipating smooth sailing during the second half of this year.'

Fitch's Prime Credit Card Chargeoff Index for June posted its third month-over-month improvement, decreasing another 13 basis points (bps) to 7.29%. The decline in cardholder defaults represents a two-and-a-half year low and is down 35% year-over-year. From its peak in September 2009, this decrease also marks a 37% drop. Aside from a small blip for Chase, the large trusts which make up the majority of the index including Bank of America, Capital One, Citibank, and Discover, all reported monthly improvements in default rates.

Delinquencies yet again trended lower for the 17-straight monthly period. While extending to a historic 47-month low, Fitch's 60+ day delinquency index declined with another 18 bp improvement to 2.57%. At a current level not seen since August 2007, late stage delinquencies for June are 36% lower year over year. Early stage delinquencies followed suit, also improving month over month with 30+ day delinquency level declining another 21 bps to 3.33%.

Gross yield fared better in June after a brief slip last month, increasing 75 bps to 20.84%. And as expected, with positive gains in defaults and yield, excess spread measures continue to shatter new records from the month before. The three-month average excess spread posted another all time high in June, registering another 11 bp improvement to 10.83%.

Monthly excess spread posted a gain of 90 bps to 10.94%. The three-month average spread is 36% higher when compared to the same period last year. Monthly payment rate (MPR) also came back to par after a temporary slide in May. MPR increased 1.36% to 21.40% during the month.

'The diminishing effect of discount options has not fully translated to lower yield and excess spread,' said Director Herman Poon. 'Excess spread remains at record highs and can easily withstand any potential aftershock for the foreseeable future.'

Fitch's Prime Credit Card index was established in 1991 and tracks more than $150 billion of prime credit card ABS backed by approximately $266 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.

With the exception of improvements in both the delinquency and chargeoff fronts, Fitch's retail credit card index continue to exhibit mixed results in the month of June. Gross yield fell 59 bps to 25.29%, although remaining approximately 7% higher year-over-year. MPR was flat with a marginal five bp drop to 14.27%. The three month average excess spread measure exhibited a similar pattern, also dropping a mere four bps to 11.35%.

On a positive note, however, chargeoffs for June broke below the double digit range and registered a 31-month low. Retail defaults improved and decreased 74 bps to 9.85%, showing a level not seen since November 2008. At the same time, both early and late stage delinquencies exhibited further declines. The 30+ day delinquency rate fell 20 bps to 5.06%, while late payments more than 60 days improved for the fourth straight month while recording a historic 46-month low. Late stage delinquencies fell another 27 bps to 3.42% and are 29% lower year over year.

Fitch's Retail Credit Card index tracks more than $32 billion of retail or private label credit card ABS backed by approximately $49 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'

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