Credit card ABS solid even as delinquencies climb

By Nancy Leinfuss

NEW YORK (Reuters) - Despite concerns over a weakening U.S. economy and an increasingly cash-strapped consumer, investors in asset-backed securities supported by consumer credit debt should not expect their market to be roiled.

Delinquencies still remain in line with historic norms, borrowers are repaying nearly 20 percent of balances each month, and the poor lending standards that fueled the subprime mortgage crisis are largely absent from the mostly prime credit card asset type, leaving it better able to weather an economic downturn.

"A monthly payment rate near 20 percent indicates that consumers are paying their credit card balances," said Glenn Schultz, analyst at Wachovia Securities. "If you saw payment rates fall as charge-offs rose, then that would tell you something."

Delinquencies of 60 days or more on prime credit cards climbed 0.04 percent to 3.16 percent in March but have still just reached their long-term historical average. Prime delinquencies are up 0.55 percent on a year-over-year basis, said Fitch Ratings.

Charge-offs have climbed by 100 basis points over the last six months to 5.73 percent in March but remain below their 6 percent long-term average, said Fitch. Charge-offs are write-downs of uncollectible debt.

"Credit cards didn't have the explosive growth and the weakening of underwriting standards that you saw in mortgage or home equity line of credit product," said Cynthia Ullrich, a Fitch analyst. "It didn't climb as high, so it doesn't have that far to fall," the analyst said.

While overall issuance of ABS securities has tumbled by over 80 percent from year ago levels, the credit card segment has been the only asset class to experience growth. Appetite for deals has been strong. Sales of credit card ABS totaled $35 billion through April, jumping 14 percent above the same year ago period.

In yet another positive sign for the market, yield spreads have narrowed about 20 to 30 basis points since mid-April.