Fitch: Six-Year Unemployment Low a Plus for U.S. Credit Card ABS

NEW YORK--()--A six-year low in unemployment should help extend record performance gains of U.S. credit card ABS collateral, according to the latest monthly index results from Fitch Ratings.

The Labor Department reported Friday that total nonfarm payroll employment grew by 248,000 in September and that the unemployment rate dropped to 5.9% from 6.1%. This represents the largest drop in unemployment since July 2008.

Encouraging employment numbers along with positive second quarter GDP have contributed to solid credit card ABS performance. Retail sales rose 0.6% in August from the previous month while consumer spending increased 0.5%. All indications still point to U.S. credit card ABS performance staying in record territory for the near-term.

Fitch's Prime Credit Card Chargeoff Index increased slightly for the August collection period after declining to an all-time in the previous month, Chargeoffs now stand at 2.70%. The index has declined 18.92% year-over-year (YOY) and is now 77% below its historic high of 11.52% reached in September 2009.

Fitch's Prime Credit Card 60+ Day Delinquency Index fell seven basis points (bps) to 0.99% in September after increasing in August. The decline marks a milestone for the index, which is now at its lowest level since its launch in 1991. The index has declined 22.05% YOY and stands 78% below the high of 4.54% that was reached in January 2010.

After setting a historical high last month, Fitch's MPR Index decreased 186 bps MOM to 26.42%. Despite the dip, current levels remain well above the index's long-run average of 17.32%. During the same period, Fitch's Prime Credit Card Gross Yield Index fell 26 bps to 18.22%, a decline of 1.43% MOM.

While gross yield decreased, Fitch's Prime Credit Card Three-month Average Excess Spread Index increased 37 bps MOM to an all-time high of 13.49% in September. Prime three-month average excess spread is now nearly 9% higher YOY.

Fitch's Prime Credit Card Index was established in 1991 and tracks over $132 billion of prime credit card ABS backed by approximately $252 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 Chargeoff Index decreased by one bps this month to 6.07%. Although this index is down only one bps YOY, it has declined nearly 55% from its all-time high of 13.41% in March 2010.

On the other hand, Fitch's Retail Credit Card 60+ Day Delinquency index increased 13 bps MOM to 2.35% after hitting its all- time low last month. The retail 60+ day delinquency index is now 2.9% lower on the year.

The retail MPR index declined 26 bps to 15.64% in September. Fitch's Retail Credit Card Gross Yield Index increased nearly 1% MOM to 27.89% and Fitch's retail three-month average excess spread index rose by 114 bps to 17.95%. Fitch's indexes for gross yield and three-month average excess spread remain higher YOY by 2.2% and 8%, respectively.

Fitch's Retail Credit Card Index tracks more than $17.8 billion of retail or private label credit card ABS backed by over $31.4 billion of principal receivables. The index is primarily comprised of private label portfolios originated and serviced by Citibank (South Dakota) N.A., Synchrony Financial (Formerly GE Capital Retail Bank), and Comenity Bank (Formerly World Financial Network National Bank). More than 165 retailers are incorporated including Walmart, Sears, Home Depot, Federated, Lowes, J.C. Penney, Limited Brands, Best Buy, Lane Bryant and Dillard's, among others.

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Contacts

Fitch Ratings
Jenny Ovalle, +1-212-908-0849
Associate Director
Fitch Ratings, Inc.
33 Whitehall Street, New York, NY 10004
or
Michael Dean, +1-212-908-0556
Managing Director
or
Media Relations
Sandro Scenga, New York, +1-212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Jenny Ovalle, +1-212-908-0849
Associate Director
Fitch Ratings, Inc.
33 Whitehall Street, New York, NY 10004
or
Michael Dean, +1-212-908-0556
Managing Director
or
Media Relations
Sandro Scenga, New York, +1-212-908-0278
sandro.scenga@fitchratings.com