In a report released today, Barclays Capital analysts said that they remain positive on credit
card collateral fundamentals.
They mentioned that yesterday major bank and retail credit card ABS trusts released servicer reports for the December distribution date or November collection period.
In general, analysts said that bank card collateral performance weakened slightly, with chargeoffs
rising and excess spread, payment rate and yield decreasing.
By contrast, aggregate retail credit card collateral performance was mostly better this month; charge-offs dipped and excess spread, payment rate, and yield were higher. Meanwhile, delinquencies for bank and retail cards remained generally the same, Moody's reported.
The year-end doldrums continued in the consumer ABS primary market without new non-mortgage ABS deals were pricing or marketing.
Barclays analysts said that secondary market trading started to slow this week as well, with buyers seeming to be securing positions before year-end. Consumer ABS spreads were generally unchanged across the sector, analysts said.
Approaching 2012, they have not changed their recommendations. They are mostly overweight in the auto-related ABS asset classes, except for a neutral weighting on senior retail auto loan and dealer floorplan deals. Within the sector, analysts still suggest recent vintage subordinate auto loan ABS.
Analysts still hold an overweight in senior FFELP student loan ABS. They maintained their neutral recommendation on bank credit card ABS, with the beief that upside potential is more limited in this asset class than in others.
Meanwhile, Moody's Investors Service today also released a positive outlook on the card sector. The rating agency said that the performance of U.S. credit card ABS will continue to improve in 2012, although at a decelerating pace over the year.
Some credit card firms are starting to loosen underwriting guidelines, but they are not adding new originations of lesser credit quality to securitized deals, which would weigh on their performance, Moodys stated.
"So long as issuers don't add receivables from new accounts to the securitizations, the credit mix won't deteriorate from current levels," said Luisa De Gaetano, vice president and senior credit officer at Moody's.
The agency's bank sponsors are now funding new credit card activity with other sources including deposits. Competition from these alternative sources will also continue to dampen the volume of credit card offerings next year, which Moody's expects will be close to 2011 levels. This would be about $10 billion to $15 billion.
The new 2011 credit card originations were only about half the rate seen in 2007 prior to the recession. At the same time, consumers are depending less on their credit cards to finance their spending versus before the recession, Moody's said.
"Only after 2012, when the economic recovery begins in earnest, will cardholders start leveraging up again and issuers loosen underwriting standards to a level substantially higher than today's, which would lead to faster receivables growth and more securitizations," De Gaetano said.
A long-term concern for ABS credit quality is that the creditworthiness of the sponsor banks is at risk of declining more, with regulators in the process of implementing the Dodd-Frank resolution framework. They want to reduce the potential for government support as the banks undergo the current negative macroeconomic environment given the European debt crisis, the U.S. foreclosure crisis, and the U.S. government's uncertain fiscal policy, Moody's said.
