October 23, 2009
-
News: Moody; CC Defaults Down
Analysts continue to debate whether the U.S. economy has pulled out of the recession. The answer remains to be seen; however, there are some clear signs that things are beginning a slow turn toward recovery. Moody's Investors Service conducts financial research and analysis on commercial, consumer, and governmental entities including the credit card industry. The company also uses a standardized rating scale to rate consumer card holders. According to the most recent report by Moody's, five of the six largest U.S. credit card companies reported a decline in credit card defaults for the month of September. Defaults for the industry overall fell to 10.72 percent in September from a record-high 11.49 percent in August.
Credit card delinquencies of 30 days or more were not as encouraging. Delinquencies increased to 5.97 percent from 5.80 percent the previous month. American Express Co was the top performer and the only major credit card company that didn't show an increase in delinquencies remaining basically flat with the previous month. Bank of America and Citigroup were the poorest performers. Not surprising since these two banks carry the highest risk portfolios. The increase indicates there are still more bumps ahead because delinquencies turn into defaults and therefore are a good predictor of future write-offs. Moody's forecasted that defaults will continue to rise and will not expected to peak until sometime during mid 2010.
Unemployment is another indicator that credit card companies can expect to continue rising defaults as the unemployment rate continues to rise as well. The U.S. unemployment rate is also at historical highs rising to 9.8 percent last month. Analysts predict the rate will rise to more than 10 percent before it begins to level off. Moody's Investors Service is owned by the New York based company Moody's Corporation and is traded on the New York Stock Exchange (NYSE) under the symbol MCO.