News Column

Fitch: US Subprime Credit Card Levels Not Pressuring ABS Yet

July 1, 2014



NEW YORK--(BUSINESS WIRE)-- The recent increase in subprime credit card originations is unlikely to have a negative impact on credit card ABS as the sector's metrics are historically strong and other originations are not directly mirrored in ABS pools, Fitch Ratings says.

According to The Wall Street Journal, Equifax reported subprime's share of credit card originations grew to 39%, year over year, in the first quarter. It hit a low in 2010 of just over 20%. The number of credit card offers mailed in the US in the first quarter rose 7% to 992 million, according to Mintel Group.

Fitch data indicates that the increases of subprime originations are likely concentrated with private label issuers including Citigroup, Synchrony and Capital One as those companies typically have a greater proportion of subprime accounts. Fitch data first indicated domestic banks began loosening credit card underwriting standards in the third quarter of 2010.

In our view, overall ABS metrics will likely weaken if the mix of subprime loans (i.e. loans with FICO scores lower than 660) in ABS pools begins to gradually increase. However, that weakening is unlikely to have a negative impact on bondholders. Of the ABS transactions that Fitch currently rates, most have a proven track record and include a large mix of loans with FICO scores above 720. And, the credit environment remains benign, supported by some job growth and low interest rates.

We do not expect the growth in subprime card originations to result in a commensurate decline in the performance of Fitch-rated ABS credit card trusts. The mix of subprime loans in ABS deals that Fitch rates has actually declined in recent years. Between 2011 and 2013, the average subprime portion fell from 19% to 16%. The percentage of subprime originations during that period was also flat and related spending limits grew.

Fitch believes the drivers behind lower concentrations of subprime accounts in Fitch-rated trusts can be attributed to a reduction of lower credit quality accounts through chargeoffs and new regulations that have reduced the profitability of these accounts, resulting in downward pressure on subprime originations. We expect credit card ABS delinquencies and chargeoffs to remain at or near current levels over the near term. Over the longer term, we expect some normalization in credit performance as underwriting standards continue to loosen.

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.

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Fitch Ratings

Lauren Tierney

Director

U.S. Structured Finance

+1 212 908-9168

33 Whitehall Street

New York, NY

or

Brendan Sheehy

Director

Financial Institutions

+1 212 908-9138

or

Jenny Ovalle

Associate Director

U.S. Structured Finance

+1 212 908-0849

or

Rob Rowan

Senior Director

Fitch Wire

+1 212 908-9159

or

Media Relations

Brian Bertsch, New York, +1 212-908-0549

brian.bertsch@fitchratings.com

Sandro Scenga, New York, +1 212-908-0278

sandro.scenga@fitchratings.com

Source: Fitch Ratings


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