Reply #39: US credit card delinquencies at record high [View All]

[Demeter]

http://www.ft.com/cms/s/0/b1e100fe-f30e-11dd-abe6-0000779fd2ac.html

By Saskia Scholtes in New York

Published: February 4 2009 23:33 | Last updated: February 4 2009 23:33

US credit card delinquencies hit a record high in January, and further deterioration is likely as the economy slows down and unemployment rises, Fitch Ratings says.

Payments at least 60 days late rose almost half a percentage point last month to a record 3.75 per cent, said Fitch. Credit card lenders also wrote off loans to delinquent borrowers at close to record levels, and such “charge-offs” were expected to breach records in the coming months...Late payments on credit cards crept higher throughout 2008, said Fitch, but signs of borrower stress rose in the fourth quarter as late payments surged by 18 per cent. Charge-off rates in January were 40 per cent higher than a year ago at 7.5 per cent and were expected to approach 9 per cent during the second half of 2009.

Late payments and defaults on credit cards have been closely linked with levels of unemployment, which have risen dramatically. Non-farm employment fell 524,000 in December, contributing to the biggest decline in payrolls on a three-month moving average since 1945. The unemployment rate jumped to a 15-year high of 7.2 per cent, from 6.8 per cent in November.

Rising late payments and defaults on credit card loans would hurt the performance of securities backed by credit card receivables, Fitch said, but downgrades would be limited in the near-term because of lower funding costs. Securities backed by credit card receivables have rallied in recent weeks, in part because of such lower cost funds, and as investors look forward to the launch of a new Federal Reserve programme to lend against such asset-backed securities.

However, analysts at Barclays Capital warn the rally could be short-lived amid continued economic deterioration and proposed bankruptcy legislation that could boost charge-off levels.

Credit card lenders have also suffered as consumers rein in their spending. Fourth-quarter earnings reports from JPMorgan, Citigroup and Bank of America showed a steeper-than-expected drop in card volumes: down 8 per cent, 15 per cent and 13 per cent, year on year, respectively.

Credit card lending has historically accounted for between 15 and 25 per cent of pre-tax income at JPMorgan, Bank of America and Citigroup, according to Moody’s. Analysts expect these businesses to shrink as lenders tighten credit standards and cut credit lines.


IN THE WORDS OF DARTH CHENEY: "SO WHAT?"