Credit Card Charge Off Rate Highest in 20 Years - Moody's

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 |  Includes: BAC, JPM
by: Tyler Durden

Hi-fi quants are like pigs in a trough today, driving the market on horrible new home sales numbers just as State Street (NYSE:STT) is back to its usual antics and (or as a result of which) Fidelity (NYSE:FNF) disclosing no IWM borrow available. In the meantime, Moody's has released its Credit Card Index update: charge off rates for May have now surpassed 10%. From the report:

These trajectories are both consistent with our revised expectation for the charge-off rate index to peak in the second quarter of 2010 at about 12 percent, assuming an unemployment rate peak close to 10 percent in the first half of 2010.

The charge-off rate for accounts assumed to be bad debts increased to a new high in April for the fifth consecutive month, settling at 9.97 percent.

After tacking on another 60-plus basis points in April, the index charge-off rate is now almost 60 percent higher than a year ago.

This pace of rising charge-offs is unprecedented as year-over-year changes continue to surpass the magnitude of either increases or decreases experienced during any previous period.

We anticipate that by mid-year delinquency rates will again be on the rise in concert with a deteriorating employment picture into 2010.

And speaking of credit cards, JPM has just imposed a 5% credit card balance fee (higher than even that at nationalized in all but name bank BofA (NYSE:BAC), which only went as high as 4%). This is sure to "facilitate" the willingness of consumer to borrow the nearly $1 trillion in excess cash held in assorted bank basements. Also, it might put a damper on future iPhone sales: every iPhone purchase is roughly equivalent to 0.0001% increase in charge off rates.

So when a few SPARCstations are buying every dip simply because they expect other SPARCs to join in the fray, with slow retail investors hoping this mini rally is for real and lapping up Liesman's optimism as justification to part with their increasingly harder earned cash, who cares about fundamentals.