Two prominent ABS research teams tackled the credit card sector last week as Lehman Brothers touted Discover Bank's ABS as a refuge of value after its spreads widened on reports of a corporate spinoff, and Morgan Stanley dissected various issues at credit card issuers GE Capital, Capital One Financial and the Bank of America-owned Fleet trust.
Last month, Morgan Stanley announced it would pursue a Discover credit card unit spinoff, prompting Moody's Investors Service to place 49 of Discover's bonds on review for a downgrade. As a result, spreads on Discover's triple-A rated paper widened 10 to 12 basis points, according to Lehman's calculations. With the notes at those soft spread levels, Lehman says it is time for investors to jump in. "We believe the significant spread widening on Discover credit-card ABS is unwarranted. Spreads should remain soft in the near term due to uncertainty, but investors should look to buy on weakness," Lehman said in a report.