Fitch: US Credit Cards: Bottoming Losses Expected to Inch Up

Mon May 12, 2014 12:09pm EDT

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(The following statement was released by the rating agency) NEW YORK, May 12 (Fitch) US credit card losses have likely bottomed and are expected to move modestly higher by the end of 2014, according to Fitch Ratings. Fitch's review of 1Q14 card performance measures shows modest rises in net chargeoffs (NCOs) and leveling card delinquencies, as well as some easing of lending standards and savings rates. These trends are signals that card NCOs, steadily dropping since the financial crisis, have likely run their course for improvement. NCOs at each of the top six US general purpose card issuers climbed between 1Q14 and 4Q13, rising 13 bps on a weighted basis to 2.85%. Post-holiday seasonal effects explain a portion of the first quarter rise, yet the jump was notably higher than the rise seen one year ago. The increases in NCOs were highest at American Express, Discover and U.S. Bancorp. These firms also saw steadier, higher growth rates in outstanding portfolio balances, which may reflect some easing of lending standards following significant tightening in the midst of the crisis, adding to our expectation that card losses are likely to exit 2014 higher than where they started. Late stage (90+ day) delinquencies, after rising from multi-year lows in 4Q13, held relatively flat in 1Q14, amounting to 0.93% on a weighted average portfolio basis. Personal savings rates amounting to 3.8% of disposable personal income in March 2014 were down from 4.2% in February. These levels remain below the 5.5% monthly average seen between 2009-2013, but remain better than pre-crisis levels, according to the US Bureau of Economic Analysis. US weekly unemployment claims, which historically track Fitch's ABS Index of Prime Chargeoffs, have risen to an average of 325,000 over the past four weeks ending May 3. If upticks in claims continue meaningfully, our expectation for increases in card losses will grow. For a detailed analysis of card issuers' first quarter 2014 performance, see the special report "U.S. Credit Cards: Asset Quality Review 1Q14," published today at www.fitchratings.com Contact: Meghan Neenan, CFA Senior Director Financial Institutions +1-212-908-9121 Matthew Noll, CFA Senior Director Fitch Wire +1-212-908-0652 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. Additional information is available on www.fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. Applicable Criteria and Related Research: U.S. Credit Cards: Asset Quality Review 1Q14 here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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