Bonds News

Credit card charge-off rate nears 10 pct -Moody's

SAN FRANCISCO, May 27 (Reuters) - Credit-card charge-off rates rose in April, underscoring the strain on consumers’ finances from rising unemployment, a Moody’s Investors Service report said on Wednesday.

The Moody’s Credit Card Index’s charge-off rate -- debts that card issuers believe they will never collect -- rose to nearly 10 percent in April, the highest level in the index’s more than 20-year history, the report said.

At the same time, credit card delinquency rates “were somewhat less discouraging as seasonal patterns led to a pause from long-term trend of increases,” the report said.

“These trajectories are both consistent with our revised expectation for the charge-off rate index to peak in the second quarter of 2010 at about 12 percent, assuming an unemployment rate peak close to 10 percent in the first half of 2010,” the report said.

The charge-off rate for accounts assumed to be bad debts increased to a new high in April for the fifth consecutive month, settling at 9.97 percent, the report said.

“After tacking on another 60-plus basis points in April, the index charge-off rate is now almost 60 percent higher than a year ago,” the report said.

“This pace of rising charge-offs is unprecedented as year-over-year changes continue to surpass the magnitude of either increases or decreases experienced during any previous period,” the report said.

April’s 6.34 percent delinquency rate marked a retreat from the prior month’s 6.40 percent and broke a string of increases from 4.45 percent in June of last year. Additionally, the rate of early-stage delinquencies shrank in April.

However, the improvements may be fleeting.

“We anticipate that by mid-year delinquency rates will again be on the rise in concert with a deteriorating employment picture into 2010,” the report said. (Reporting by Jim Christie)