Upbeat Outlook for Credit Card Backed Securities - S&P

Standard & Poor’s continues to be relatively positive about securities backed by credit card debt, even as consumers increasingly turn to their credit cards to cover their expenses.

In an updated report on the sector, S&P says issuers have taken steps to manage risk.

We expect credit card receivables to grow in the high single digits for the year 2008. This rate is slightly higher than the more recent historical averages but lower than what we’ve seen in past recessions.

The rate reflects the fact that consumers today have accumulated more debt and pay higher debt service than in prior recessions. Current debt service of about 14% of income, the highest since 1980, the very low savings rate, an unemployment rate of 5.5%, and soaring energy costs add concern about the current consumer market and obligors’ ability to pay back credit card loans.

As a result, S&P expects charge-off rates to continue rising. The May 2008 average loss rate was 6.0%, well below the peak of 7.6%, which occurred after the 2001 recession. The other performance ratios are healthy:

• The May yield was about 18%, excess spread was 7.1%, and the payment rate was strong at 19.7%, all of which should continue to protect ABS investors from the expected rise in default rates.
• The break-even loss rate at the ‘BBB’ level for a prime pool exceeds our Chief Economist’s severe recession economic forecast for an industry average peak charge-off rate of 8.1%.

... we believe that U.S. credit card ABS ratings should endure a severe recession without experiencing payment defaults.

Comments

[Ishortyou:]

Greedy crooks in Banks and Broker firms wrapped subprime, credit cards, bad loans, roten teeth, hair, junk, etc. into structured finance vehicles i.e.: CDO-ABS-MBS-SIVs, they misled the market and bond insurers into these fraud and now everyone is paying the price with losses now the misleds have to clear up their books from that toxic waste! Rating agencies need to reinstate bond insurers triple A ratings once their books are cleared of toxic waste.

2008 Aug 04 01:18 PM

[JPDD:]

Citi announced losses on credit-card securitizations:
tinyurl.com/5rvr8o

I wonder whether S&P is missing the boat on this one too.

2008 Aug 04 01:25 PM

[ScottsdaleBob:]

V & MC don't hold their own debt.... I am staying long V.

2008 Aug 04 02:38 PM

[Lockstep In...:]

Your graph ends at Q1 08 and we are in Q3. I think you should make display until the current date. Between April and May we had the largest jump in unemployment in 20 years and your information makes no reference to this large spike.

Just looking for quality in the information presented.

2008 Aug 04 06:26 PM

[Fighting Yoda:]

Is this an upbeat or downbeat report?

2008 Aug 05 12:15 AM

[User 172125:]

I don't know when investors will wake up (if ever) to the fact that 'securities' backed by debt- are better left to professionals.

The reason we are in the mess we are in is that I-banks securitized a vehicle they knew little about- and banks were complicit in the largest ponze scheme in US corporate history.

Straight equity all the way for me.

As far as the V/MA comparison- As I predicted V has finally decoupled from MA and is in its own league.

MA had its run- V is the play going forward.

www.visawinners.com

2008 Aug 05 02:14 AM

[kurt walter:]

credit card debt securities meet subprime debt. ... watch out for the meltdown.

2008 Aug 05 01:36 PM

[discov:]

Man, I am not even worried about credit card and sub prime. I am concerned that alt-a is the real killer coming.

I have said more about my distrust of the banks right now at
concisetrading.blogspo.../
Ryan

2008 Aug 05 06:08 PM

[User 172125:]

Nayr- Good Point.

Listen-I have said my final piece on V- am moving onto some other sectors. I am working now on our other blogs (which I won't post here as they have nothing to do with V). Just wanted to say that it has been a lot of fun- (and a great distraction from market turmoil) to talk about V the past few months).

I wish all of you holding V/MA/AXP- etc... (and other stocks)- best of luck in the second half of the year. God knows we could all use some luck right now.

Jon

2008 Aug 05 08:58 PM

[HT5:]

V-Winner. When V was over $80 you were so bold as to say V would never see $75 again.
You were so confident, that you started your own little web site and invited all your little followers to join the party. After V got beaten down you came back to this forum on a mission of mercy to save us.

Please, V-Winner just take your babble somewhere else!


On Aug 05 08:58 PM V Winner wrote:

> Nayr- Good Point.
>
> Listen-I have said my final piece on V- am moving onto some other
> sectors. I am working now on our other blogs (which I won't post
> here as they have nothing to do with V). Just wanted to say that
> it has been a lot of fun- (and a great distraction from market turmoil)
> to talk about V the past few months).
>
> I wish all of you holding V/MA/AXP- etc... (and other stocks)- best
> of luck in the second half of the year. God knows we could all use
> some luck right now.
>
> Jon

2008 Aug 06 01:16 PM

[mrbill for V:]

HT5: Right on the money, he has stated more than once that he is leaving Seeking Alpha and that we are all a bunch of children. Read past posts everyone.

2008 Aug 07 08:45 AM

[String:]

Once the "few" have it all, this will be a great country. Wouldn't you agree!

2008 Aug 18 11:14 PM