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Date: Thu, 02 Apr 2009 19:00:35 -0400
To: TSCM-L2006_at_googlegroups.com
From: "James M. Atkinson" <jm..._at_tscm.com>
Subject: Things Are Just Peachy - Credit card charge-offs hit record
high
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http://uk.reuters.com/article/marketsNewsUS/idUKN0150570720090401
Credit card charge-offs hit record high -Moody's
Wed Apr 1, 2009 8:01pm BST
By Nancy Leinfuss
NEW YORK, April 1 (Reuters) - Credit card write-downs soared to
record levels in February, representing an all-time high in the
20-year history of the Moody's Credit Card Index, as job losses
mounted, the rating agency said on Wednesday.
Credit card charge-offs, the write-down of uncollectable debt,
advanced decisively to 8.82 percent in February, marking the sixth
consecutive month of increases. The level, is more than 300 basis
points higher than a year ago.
Sharp increases were experienced across several large issuers and
have closely followed the surges in unemployment occurring over
recent months, the rating agency said.
"We expect that the charge-off index will threaten double digits by
the end of the year, in light of our expectation that the economy
will worsen throughout the remainder of the year," Moody's said.
It predicts the charge-off rate index will peak at about 10.5 percent
in the first half of 2010, assuming a coincident unemployment rate
peak at 10 percent.
As deal performance continues to erode, the potential for additional
rating actions increases, especially for the lower-rated subordinate tranches.
Despite the marked deterioration in collateral performance, Moody's
said it has placed under review relatively few of the card-backed
notes from the industry's largest credit card issuers. That's due, in
part, to the explicit support through additional credit enhancement
that some issuers have provided to their related ABS programs.
HSBC, Bank of America, GE and Citibank have, or announced intentions
to, come to the aid of their ABS transactions. Still, it said,
collateral performance, especially the charge-off rate, is expected
to continue to deteriorate.
RISING DELINQUENCY RATES
Delinquency rates on credit cards also advanced in February. Moody's
delinquency rate index broke through the 6 percent level to 6.14 percent.
However, Moody's said, delinquency rates tend to exhibit a seasonal
element, usually peaking in the early months of the year, followed by
a reduction in delinquencies resulting in part from the spring tax
refund season.
"We would expect these seasonal factors to help limit increases in
the delinquency rate in the immediate months ahead, but the
overwhelming influence of the negative economic environment should
continue driving delinquencies to record-high levels by mid-year,"
the rating agency said.
Additionally, Moody's principal payment rate index, a measure of
cardholders' willingness and ability to repay their credit card debt,
plunged to 15.16 percent in February, due in part, it said to the
continued secular trend of softer payment rates that it expects
throughout 2009.
However, it said, the significant month-over-month drop was mostly
due to the fact that February has the fewest number of collection days.
Moody's credit card yield index, which had been falling over the past
couple of years, staged a rebound and rose above the 17 percent level
in February, to 17.49 percent. The rating agency attributed the rise
to issuers' continued implementation of cardholder re-pricing
initiatives. An increasing proportion of balances in credit card
trusts are becoming subject to higher interest rates.
The rating agency said widespread re-pricings across the industry,
along with implementation by some issuers of yield-enhancing
features, are jointly expected to have an increasingly positive
effect on the index yield measure in the months ahead.
The excess spread index, which measures credit support, shrank to
5.62 percent in February, despite the impact of issuers' measures to
enhance yield. The sharp climb in charge-offs compressed excess
spreads across the industry.
"Looking ahead into 2009, we expect that the implementation of
yield-enhancing actions by issuers will be the primary tool that
mitigates erosion of excess spread," Moody's said. (Editing by Jan Paschal)
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Received on Sat Mar 02 2024 - 00:57:20 CST