U.S. credit card chargeoffs surged to near record levels set last fall, according to the latest Credit Card Index results from Fitch Ratings. Fitch’s prime credit card chargeoff index jumped 112 basis points (11%) to 11.37%. The results, which cover the January collection period, pushed the index to its highest level since September 2009’s record 11.52% and 54% above year earlier levels.
“Until we see some meaningful improvement for employment numbers, consumer delinquencies and defaults will remain elevated at or near these levels.”
Fitch’s prime credit card chargeoff index jumped 112 basis points (11%) to 11.37%. The results, which cover the January collection period, pushed the index to its highest level since September 2009’s record 11.52% and 54% above year earlier levels. The increase was largely driven by a payment holiday for Chase credit cardholders, which pushed more chargeoffs into the current period, the rating agency says.
60+ day credit card delinquencies in the U.S. fell slightly this month, down four bps to 4.50%, while the 30-day rate declined six bps to 5.72%. Consistent with seasonal patterns, the 60-plus day delinquency index is off its 4.54% record high set in December and is essentially flat versus year earlier levels but is still 11% higher than in the February 2009 period.
“Late-stage delinquencies are still trending in the 4% range industrywide, which is keeping chargeoff levels in the double-digits,” Managing Director Michael Dean at Fitch Ratings says in a statement.
‘Until we see some meaningful improvement for employment numbers, consumer delinquencies and defaults will remain elevated at or near these levels,” he says.
The latest results follow a fourth-quarter 2009 (4Q’09) increase in delinquencies that presaged the current chargeoff spike and should signal a normalization of performance due to the policy changes implemented by some large issuers.
“Delinquencies have stabilized in recent periods but they are still high on a historical basis.”
Despite the continued default increases, Fitch expects ratings on senior credit card ABS tranches to remain stable given available credit enhancement, loss coverage multiples, and structural protections afforded investors.
The Outlook for subordinate tranches remains Negative.
Fitch expects U.S. unemployment will peak at 10.4% in 2Q’10 and remain above the 10% threshold throughout the remainder of this year.
Gross yield remained robust in February at 20.14% after reaching a nine-year high of 21.15% in the previous month. Gross yield was up 26% from a year ago, thanks to the mitigating actions taken by issuers in anticipation of legislative changes taking place in 1Q’10 which will restrict their ability to raise APRs.
Excess spread dropped 24% to 6.3% from last month as a result of the spike in the chargeoff rate. However, on a three-month average basis, excess spread only experienced a 30 bp drop to 7.25%, holding three-month excess spread above 7% for the second month in a row.
After averaging 17.49% in 2009, monthly payment rate (MPR) continues to improve in 2010. February MPR reached 19.34%, representing a 13% increase compared to the same period in 2009.