Moody's Sees Stress on Credit Card Industry Through 2009

Credit card charge-off rates in the U.S. continued to rise in August and are expected to surpass the peak rate of charge-offs following previous recessions, according to Moody's Investor Services.

The charge-off rate, which measures credit card balances written off as uncollectible as an annualized percent of loans outstanding, rose 48 percent in August to 6.82 percent, compared with 4.61 percent a year ago, said Moody's in a special report.

Moody's said it expects the industry to remain under pressure through the end of 2009 as a result of the worldwide economic crisis and worsening underlying collateral performance as the credit card asset-backed securities market shows signs of increasing stress.

Although the balance sheet strength and liquidity of the sector’s largest credit card issuers remains quite strong, the uncertainty and tempo of the turmoil will test even the stalwarts’ ability to adapt.

In its mid-year report released last month, Moody's forecasted the sharp deterioration in credit card delinquency and charge-off rates. Earlier this month, Standard and Poor?'s highlighted the worsening performance in August of credit card ABS.

For details, see Credit Card Sector Faces Challenging Period Ahead.

Comments

[thedozer:]

Usually I wouldn't endorse the thought of a party defaulting on an obligation. But the unsecured debt world is full of misleading dirtbags preying on the addicted spender.

When Paulson starts using my money to bailout these guys (as he will) for something that is by definition 'unsecured'; I will officially blow my lid!

Back in my days of debt, I was personally screwed by Chase via interest rate hike despite 4 years of timely payments on a 0% card....

The reasoning... "my balance was high relative to my limit" ... yeah...
according to who??? Chase... With NO criteria as to how the word "high" was defined. For the record, the bill was decreasing each month as I payed...

My lesson learned... NO MORE DEBT! EVER... save & pay $

wow.... what a proverb... maybe ALL of us should adhere to this mantra.

2008 Oct 21 09:35 PM

[juggerMan:]

Well, if Moody's says so...I mean...who are we to argue...

2008 Oct 21 10:19 PM

[sstro:]

No surprises here. Maybe in the future they will give credit to only those who will pay the bills. It's high time for people to take responability and quit blaming the credit card companies for spending what they know they can't afford. Don't blame the drug dealer when you get addicted no one forced you to take it and no one forced you to spend what you didn't have.

2008 Oct 21 11:38 PM

[Moon Kil Woong:]

I think the student loan market is next up for a crunch. Then, maybe credit cards. In general people will avoid credit card defaults until the end because they get immediate satisfaction when they use it and are loathe to loose this sort of instant gratification stimulus. Also, cedit card companies are very used to fraud and defaults. Unlike the mortgage industry which the ones issuing the loans are the fraudsters, the credit card industry only has to worry about consumer fraud.

2008 Oct 22 01:51 AM

[Smarty_Pants:]

Auto loans will begin crunching in earnest soon too.

Don't worry about paying for gas to drive your $45,000 leased SUV. The FED will be repossessing it soon after you stop making the monthly lease payments.

Several local new car dealers are having very hard times lately. Some have already closed down. Not enough buyers to cover their cost of carrying inventory. Some of the remaining ones have sparsely populated car lots.

Remember, this is at the beginning of the recession. More to follow as the impacts ripple through the supply chain.

2008 Oct 22 02:49 PM

[moonbat1775:]

Banksters

They counterfeit some money
and to make their crime complete,
they loan it out to others
to involve them in their cheat.

2008 Oct 22 03:14 PM

[Smarty_Pants:]

They say that money makes the world go 'round. What they don't tell you is that shortly there-after the world goes down the drain.

2008 Oct 22 04:55 PM

[It Figures:]

juggerMan got it right. When's the last time Moody's/S&P made an accurate forecast? Beyond me that anyone takes them seriously anymore.

2008 Oct 22 11:39 PM

[It Figures:]

juggerMan got it right. Moody's/S&P now blindly negative to try to make us forget their mammoth ineptitude leading up to all this. Amazing anyone pays them any attention at all anymore.

2008 Oct 22 11:44 PM