Credit card ABS collateral performance measures started the new year with continued across-the-board performance improvements as shown by the latest index results from Fitch Ratings.
Chargeoffs, delinquencies and excess spread improved to prolong the positive trends that had started in the summer of 2010.
Experiencing one year's worth of improving delinquency trends, chargeoffs dropped to less than 9% for the first time in 20 months. This has helped excess spread levels go over 10% for the first time, according to the rating agency.
"Though still elevated, credit trends are pointing in the right direction for U.S. card portfolios," said Managing Director Michael Dean. "Further gains on the labor front could drive more meaningful consumer credit quality improvement in first half 2011."
The agency added that ABS ratings on both prime and retail credit card trusts should remain stable considering the available credit enhancement, loss coverage multiples, and structural protections afforded investors.
The rating agency's Prime Credit Card Chargeoff Index for the month of December dipped to 8.99% for the period that covers November's collection period.
The chargeoff index is now 238 basis points less than the all-time high of 11.37% that was set in February 2010. It is currently down 16% year over year. Chargeoff rates are still persistently high by historical standards as the index averaged just above 6% for most of the last 20 years, Fitch said.
Late stage delinquencies improved by six basis points to 3.37% while 30+ day delinquencies increased three basis points to 4.54%. The late stage credit card delinquencies have even improved by 26% since last year, according Cynthia Ullrich, Fitch senior director.
Gross yield rose three basis points to 21.83%, registering the 13th straight month of yield of over 20%.
Gross yield has averaged 18.65% since the start and has been quite strong since regulatory reforms changing the issuers’ pricing strategies and trusts enacted the discount option to shelter the trusts from high chargeoffs, Fitch analysts said.
The robust yield generation and improving chargeoff situation, combined with a low cost of funds resulted in a record high three month average excess spread of 10%, which is 47% higher during the same period in 2009.
Monthly payment rate (MPR) fell 17 basis points to 19.06%, which is consistent with seasonal patterns, yet still more thatn the long-term average of 16%.
The rating agency's Prime Credit Card index was established back in 1991. It tracks over $182 billion of prime credit card ABS backed by roughly $278 billion of principal receivables. The index is primarily comprised of general purpose portfolios originated by firms such as Bank of America, Citibank, Chase, Capital One, Discover, HSBC, etc.
Retail credit card ABS showed a 91 basis point improvement in chargeoffs to 11.87% after last month’s blip that was caused by a change in policy by Citibank. Early- and late-stage delinquencies are still showing modest improvement.
Gross yield recovered following a slip last month, improving from 24.80% to 25.34%. In terms of a year-over-year basis, gross yield is 90 basis points lower, which reflects regulatory changes that stopped late and overlimit fees. These were a big revenue source for retail cards.
MPR was 13.8%, which closely tracked the long-term 13.5% average. Excess spread on a three-month average basis was 8.57%, which is roughly 6% higher compared with the same period last year.
The rating agency's Retail Credit Card index tracks over $41 billion of retail or private label credit card ABS backed by roughly $52 billion of principal receivables.
The index is mostly made up of private label portfolios originated and serviced by Citibank (South Dakota), GE Money Bank, HSBC Bank Nevada and World Financial Network National Bank. Over 165 retailers are incorporated such as Wal-Mart, Sears, Home Depot, Federated, Loews, J.C. Penney, Limited Brands, Best Buy, Lane Bryant and Dillard's, among others.
