May 8, 2012 / 2:35 PM / 7 years ago

TEXT-Fitch: U.S. credit card losses nearing the bottom

May 8 - Link to Fitch Ratings' Report: Credit Cards: Asset Quality Review
1Q12May 8 - Net charge-offs in the U.S. credit card sector could fall modestly
in the second quarter of 2012 (2Q12), given current delinquency trends,
according to Fitch Ratings. But Fitch expects loss rates to exit 2012 higher
than where they started.	
	
Stable asset performance is expected to support existing ratings assigned to
general purpose card issuers while providing a diversified source of earnings to
larger bank players. Fitch believes credit card ABS ratings will remain stable
given available credit enhancement, loss coverage multiples, and structural
protections afforded investors.	
	
While the pace of improvement has moderated, credit card asset quality metrics
continued to decline over the past two quarters, with net charge-off rates for
the top seven general purpose card issuers falling to 4.02% in 1Q12, on average;
down 237 bps year over year and down 18 bps from 4Q11. Issuer net charge-offs
were 249 bps below their 2007 - 2011 average in 1Q12, while delinquencies of 30
days or more were 169 bps below their five-year average.	
	
Card segment profitability was strong across the sector, with the top seven
issuers posting a return on average loans of 4.2% in 1Q12, on average, compared
with 4.4% in 1Q11. Revenue generally stabilized for the larger banks, but
provision expense was up 65.7% year over year, on average, given smaller reserve
releases and modest portfolio growth. Fitch expects provisions to remain a
headwind throughout 2012, as credit metrics begin their mean reversion. Still,
Fitch believes credit metrics could stabilize at a rate lower than the
historical average given changes in underwriting criteria, declines in subprime
exposure, and a broader focus on card transactors over revolvers.	
	
Portfolio contraction at the larger banks moderated in 4Q11 and 1Q12, while
other issuers recorded modest portfolio expansion. On a year-over-year basis,
the top seven general purpose card portfolios contracted 1.33% in 4Q11 and 0.15%
in 1Q12, on average, which Fitch believes signals a bottoming of portfolio
balances. Fitch expects low single digit portfolio growth in 2012.	
	
The full report 'Credit Cards: Asset Quality Review 1Q12' is available at
'www.fitchratings.com.'	
	
Additional information is available at 'www.fitchratings.com'.
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