Setting a new standard for the industry, MBNA America Bank received a servicer rating of "strong" last week by Standard & Poor's with a "stable" outlook - the first servicer rating assigned to a non-real estate consumer asset class. The move, prompted by investor inquiries, offers investors an independent view of servicing operations for a sector that, over the past two years, has shown the importance of maintaining a high quality of servicing.
"The ranking is based on MBNA's highly experienced management team, solid internal controls and risk management environment, superior level of automation, thorough policies and procedures, excellent training regiment, demonstrated default management expertise, and successful execution of strategic business initiatives," S&P said in its analysis.
S&P, through a company spokesman, said that it was in discussions with other credit card issuers to assign similar ratings, although no specific issuers could be confirmed. There are five tiers to the ranking criteria - Strong, Above Average, Average, Below Average and Weak.
The question now arises: Will others in the credit card sector seek a servicing rating and will investors demand such a rating from servicers of consumer assets in the future?
"While we have a strong belief in our servicing platform, we sought an independent assessment of our servicing platform," said Vernon Wright, CFO of MBNA Corp. and Executive Vice Chairman of MBNA's bank operating unit. "Investors had asked hypothetically If [MBNA] were rated, what would the rating be,'" he added.
Throughout the process, S&P conducted several extensive on-site due diligence visits, noted Wright adding, "An independent assessment is valuable to investors."
"Generally, it wouldn't impact my investment decision for highly rated bank-card issuers, but it certainly would be a key consideration for card issuers with weaker seller/servicer profiles," one investor said. "It can only help the monoline issuers."
While high-quality servicing is of the utmost importance, some believe that even the strongest of servicing platforms cannot mitigate the risks associated in certain areas of the market. "Personally, even a strong servicer rating for Metris and Providian, for example, wouldn't change my mind in that space - subprime," another investor said. "A good servicer cannot add jobs or household income, things needed to improve the subprime asset quality measures of a portfolio."
It is unlikely that S&P's competitors will follow suit with similar servicer ratings any time soon. While Moody's Investors Service has looked at assigning servicer ratings in the past, "We are undecided exactly where the market interest is and we would first have to decide what asset classes to devote resources," said managing director Andy Silver.
For Fitch Ratings, which has also been approached in this regard, managing director Kevin Duignan said his firm already incorporates the strength of a servicer in its rating methodology. "Fitch performs annual operations reviews and I do not expect that to translate into a servicer ranking," said Duignan. "We have been approached to assign servicer ratings [for non-mortgage servicers] but typically it has been from financially weaker seller/servicers, who may need that affirmation."