US Credit Card Performance Indicators Continue to Weaken
There seems to be a consensus that credit cards will be the next shoe to drop in the financial crisis, and Moody’s Investors Service found plenty of evidence pointing in that direction in its latest report on the sector.
Issuance of asset-backed securities linked to consumer credit cards ground to a halt in September after holding up fairly well in the first nine months of 2008. Moody’s doesn’t expect the ABS market to rebound in 2009 and said credit card issuers will continue to rely on access to U.S. government liquidity measures.
We continue to have a negative outlook on the credit card sector and believe collateral performance will deteriorate throughout 2009. There is a greater likelihood of credit card-backed debt downgrades in the coming year, especially among subordinate notes.
Of the $63 billion of maturing credit card ABS in 2009, Moody’s said $46 billion is from Bank of America (NYSE:BAC), JPMorgan Chase (NYSE:JPM) and Citigroup (NYSE:C).
Moody’s said the deteriorating state of credit card holders was reflected in September’s 17-percent increase in delinquencies and 45-percent increase in charge-offs, versus a year ago. Moody’s expects consumer bankruptcy filings to total 1,339 by the end of 2008, up 63 percent from 823 filings in 2007.
The ratings agency said an October improvement in credit spreads (LIBOR versus the prime rate) will prove to be temporary and will deteriorate again in 2009 when higher credit card charge-off rates come home to roost.
For details, see “Moody’s Credit Card Statement.”
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