February 2, 2010
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News: Fitch Index Shows ABS Stabilizing
Fitch released its Fitch Prime Credit Card Delinquency Index for January which showed that asset backed securities (ABS) stabilized during December. The offset was attributed greatly to minimal credit card delinquencies and defaults changes from November's record breaking numbers. Changes in credit card ABS trusts spreads continued to widen as new price structures advance portfolio yields. Two large trusts with significant performance were accredited to the greatest influence on the Index as card delinquencies and defaults begin to stabilize in January. Much of the credit goes to Bank of America, the nation's second largest card company, which had a significant reduction in delinquencies.
According to Fitch's Managing Director, Michael Dean, they expect credit card delinquencies and defaults to remain high because consumers have not recovered completely from the recession. Despite the lack of confidence, lenders have been successful in recovering losses due to new policies and modifications that have been put into place. However, the country isn't out of the woods yet. Unemployment continues to be a growing concern as the nation's unemployment rate reaches 10 percent. Typically credit card defaults correlate with the unemployment rate. Therefore, if unemployment remains close to 10 percent, card write-offs will be expected to also reach over 10 percent. Fitch expects them to peak at around 12 percent during 2010.
Nevertheless, the credit card ABS ratings are expected to remain stable in spite of new legislation that will increase pressure on lenders. The new legislation will limit lenders' ability to price for risk which has motivated them to find creative ways to earn profits. Fitch Ratings is a leading global rating agency that provides the financial and credit industries with independent, timely and prospective credit opinions. Built on a foundation of organic growth and strategic acquisitions, Fitch Ratings has grown rapidly during the past decade and shares a market presence with S&P and Moody's credit rating companies.