The performance of major bank credit card trust collateral for the July collection period — August distribution date — was positive, according to Barclays Capital analysts in a report released today.
They added that this is the result of charge-offs and delinquencies dropping and excess spread and payment rates improving.
Analysts think that the back-to-back dips in charge-offs are a confirmation of an improvement in performance, which has been signaled by the dropping delinquencies for most of the year.
In terms of the trust level, the major bank card issuers have generally reported improved charge-offs and delinquencies across the board. The mixed yields, according to analysts, were more than offset by lower charge-offs. This has resulted in generally rising 1m and 3m excess spreads.
The second half of the year is usually a more challenging period for performance, analysts said. Nonetheless, they think that charge-offs will drop throughout the fall, which is based on year-to-date delinquency improvements.
They added that credit card default performance has turned the corner. As a result, analysts are maintaining their projection of 9.75% to 10.00% for charge-offs in 4Q10, which is down from 10.8% in 4Q09.
Analysts cited the most recent Advanta Business Card Master Trust (ABCMT) servicer report that revealed generally positive collateral performance.
They updated their roll rate model with the current month’s collateral performance and found that the class A notes still warrant a high 90s dollar price. They also found that the class B notes will probably recover around 95 cents on the dollar and believe that such notes are attractive at current market prices.
Barclays analysts are maintaining their overweight on credit card ABS. However, they recommend that investors be selective in reaching for yield. Additionally, they believe select subordinate credit card ABS present an attractive opportunity.