The universe of bonds backed by credit card loans shrank by about a fifth last year as an era of off-balance-sheet accounting ended and the industry re-engineered its funding base.
More of the same could be in store this year, according to analysts who have projected that issuance by banks with plenty of funding alternatives will continue to be anemic.
Maturing securities exceeded sales of new bonds by about $85 billion in 2010, according to data from Barclays Capital, far in excess of the runoff in the two preceding years and easily outpacing the $65 billion contraction in credit card debt the same year.
Scheduled maturities are lower in 2011 at about $50 billion, but if Barclays' projection for issuance of between $12 billion and $15 billion pans out and the rate of decline in credit card borrowing continues to slow, the turn away from asset-backed securities could be as sharp.
Companies were forced to absorb securitizations onto their balance sheets in the first quarter of 2010 under new accounting rules, and the "decision to tap the credit card ABS market has now become primarily one of economics," analysts with Barclays wrote in a report last month — that is, whether cheaper financing is available through deposits, for instance.
They projected that retail credit card lenders will continue to account for an enlarged share of issuance because of a lack of other options for such businesses. (For the same reason — along with healthy vehicle sales — issuance of bonds backed by auto loans was fairly robust at more than $60 billion last year, up a bit from 2009 when the government's Term ABS Loan Facility jump-started securitization of consumer debt.)
Still, risk premiums on ABS are about at "pre-crisis" levels, the analysts wrote, and standing bank securitization programs have been exempted from risk-retention and other requirements under new Federal Deposit Insurance Corp. rules governing the treatment of investors in the event of insolvency. The exemptions have made the structures more valuable and the analysts "expect at least token issuance" from banks seeking to keep them active.
For charts showing credit card issuance and maturities, click on this link.