Personal bankruptcy filings in the U.S. totaled a whopping 165,459 in March, reportedly the largest number on record, but so far credit card ABS performance trends have remained stable and are expected to stay that way, according to Fitch Ratings. The spike represents an 8.5% increase over March 2004, but is only 0.2% higher, year-to-date, than last year. The March increase is largely due to the enactment of the Bankruptcy Reform Act, signed by President George W. Bush on April 20.
"The rise in bankruptcy filings will result in a near-term increase in charge-offs for issuers, as they are required to recognize such filings within 90 days of notification," according to Fitch. The rating agency said it maintains its stable outlook for the prime credit card sector and expects stable performance trends with "some seasonal volatility in the short run." In the long-run, credit card ABS performance is expected to benefit as more people are forced to pay off portions of their credit card debt.
For the February collection period, Fitch said its 60-plus day delinquency index of prime performance fell seven basis points to 2.89%, the lowest level since September and 46 basis points below year-ago levels. Prime chargeoffs climbed 21 basis points registering 5.97%, 78 basis points below March 2004 levels.
Excess spread rose eight basis points to 6.22% for the February collection period, yet was 19 basis points lower than year-ago levels, but Fitch says higher interest rates could cause funding costs to rise in the near term. Improving delinquencies and chargeoffs, as well as pricing changes, could mitigate those higher funding costs.
In terms of subprime performance, 60-plus day delinquencies declined for the fifth consecutive month, falling 33 basis points to 7.40% for the February collection period, the lowest level since July 2001, and 241 basis points below year-ago levels. Subprime charge-offs, however, rose 112 basis points to 15.06%, yet are still 221 points below year-ago levels.
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