Fitch Virtual Investor Meeting: No Achilles Heel in Sight for U.S. Consumer ABS
NEW YORK--(BUSINESS WIRE)--Prominent headline risk among struggling retailers and the student loan bubble will not be an Achilles heel for U.S. consumer ABS, according to Fitch Ratings in its U.S. structured finance investor video series.
Prime credit card ABS performance has remained stellar for the last several months, with chargeoffs (approximately 3%) and delinquencies (roughly 1%) hovering at or near record lows. This begged the question 'Have we reached the bottom?', to which Managing Director Michael Dean said 'Yes'. That said, both chargeoffs and delinquencies should remain far lower than historical norms for years to come. The same should generally hold true for retail credit card ABS despite exposure to troubled retailers like JC Penney and Sears and portfolios that generally cater to weaker quality borrowers.
Unlike other ABS sectors where intensifying competition is leading to more aggressive underwriting, a similar scenario is unlikely for credit card ABS. Dean said this is due in part to the presence of the CFPB and legislation like the Card Act, giving banks very little incentive to chase subprime card borrowers. Therefore, a return to the intensely competitive environment of the mid-1990s, where excessive competition, niche players and subprime borrowers were much more prevalent, is unlikely.
Headline risk is also prevalent in the student loan sector, though it is not likely to affect student loan ABS performance. Of the roughly $1.2 trillion in outstanding student loans, Dean said the vast majority rests on the balance sheet of the U.S. government, with private student loans encompassing roughly 15% of that pie. Roughly a fifth of that amount has been securitized vis a vis ABS. Additionally, student loan ABS securitized during and post-crisis are structurally more sound and are performing much better. Over time, Dean said initiatives like the Direct Loan Program could positively influence private SLABS from a credit perspective.
As part of Fitch's new investor video series, the rating agency's U.S. structured finance group heads discuss hot topics on investors' minds and how Fitch is addressing these topics, be it on specific deals, regulatory issues or even ways to enhance Fitch's research products. The video series will be available on Fitch's 'Multimedia' page at 'www.fitchratings.com'. Questions can be emailed to 'email@example.com'
Additional information is available on the following page: 'http://info.fitchratings.com/VirtualInvestorMeetings/'
Additional information is available at 'www.fitchratings.com'.