Credit Card Charge-Offs Increased in October.Business Editors NEW YORK--(BUSINESS WIRE)--Standard & Poor's Dec. 12, 2001-- Credit card charge-off rates increased in October 2001, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. Standard & Poor's Credit Card Quality Indexes (see list below). These indexes monitor the performance of approximately $373 billion in receivables held in trusts of rated credit card-backed securities, which make up nearly two-thirds of the total bankcard bank·card n. A card issued by a bank authorizing the holder to receive bank services and often functioning as a debit card. market. Issuers distributed October performance data on Nov. 15, 2001. The monthly charge-off rate rose 30 basis points (bps), to 6.8% in October from 6.5% in September. The increase represents a 135 bps increase in charge-off levels compared with a year ago. Credit card charge-offs and delinquency delinquency Criminal behaviour carried out by a juvenile. Young males make up the bulk of the delinquent population (about 80% in the U.S.) in all countries in which the behaviour is reported. rates have been rising for most of the year, reflecting the decline in consumer confidence and the effects of a slowing economy. Delinquencies averaged 5.3% in October, a 20 bps increase from September and a 70 bps increase from a year ago. Seventy-five percent of the trusts tracked by the indexes reported an increase in 30-plus day delinquencies this month, and almost 80% of the trusts reported an uptick Uptick A transaction occurring at price above its previous transaction. In order for an uptick to occur, a transaction price must be followed by an increased transaction price. in delinquencies in the 90-plus days bucket A reserved amount of memory that holds a single item or multiple items of data. Bucket is somewhat synonymous to "buffer," although buffers are usually memory locations for incoming data records, while buckets tend to be smaller holding areas for calculations. See hash table, buffer and variable. . Although the pace at which losses has increased slowed in recent months, the delinquency trends--combined with the recent increase in unemployment rates--point toward higher charge-off rates in the upcoming months. Subprime lenders who have witnessed the most rapid growth over the past few years, and have yet to manage through a recession, will feel the increase in losses more directly. These same lenders suffered the greatest absolute increase in losses this month. The average increase in losses in October for prime issuers was relatively modest, less than 40 bps. The subprime section, however, averaged an increase in defaults of 165 bps. Congress has delayed its plan to proceed with the bankruptcy bankruptcy, in law, settlement of the liabilities of a person or organization wholly or partially unable to meet financial obligations. The purposes are to distribute, through a court-appointed receiver, the bankrupt's assets equitably among creditors and, in most reform legislation. As a result, Standard & Poor's expects bankruptcy filing to ease from its current pace, helping push out losses in the future. The performance among the other trusts was mixed in October. Twenty-five trusts reported increases in their loss rates, and 11 reported declines compared with September's losses. For the major trusts (those with more than $5 billion in receivables), nine trusts reported increased loss rates and five reported an improvement or no change. All three of the largest trusts reported modest increases. First USA Credit Card Master Trust II charge-offs, Citibank Master Credit Card Trust losses, and MBNA MBNA Monument Builders of North America MBNA Mercedes-Benz North America MBNA Maryland Bank, National Association MBNA Maryland Bank North America MBNA Mount Baker Nurses Association (Bellingham, Washington) Credit Card Master Trust II's defaults increased by 40 bps, 30 bps, and 20 bps to 6.50%, 4.9%, and 5.5%, respectively. Other than delinquencies and charge-offs, performance trends for the other variables rebounded as expected this month. October did benefit from more collection days--23 business days in October compared with the disrupted dis·rupt tr.v. dis·rupt·ed, dis·rupt·ing, dis·rupts 1. To throw into confusion or disorder: Protesters disrupted the candidate's speech. 2. 20 business days in September. Yield increased by 100 bps to help offset the increase in loss rates. The weighted average cost of funding dropped 100 bps to 4.7%. The Federal Reserve cut short-term borrowing costs again this month, leaving the lending rate at 2.0%, its lowest since 1962. Standard & Poor's expects rates to move further down following the next Federal Reserve meeting in December. The gains in yield and the lower cost of funds Cost of Funds The interest rate paid on an outstanding loan. Notes: Money isn't free! Cost of funds is the cost of borrowing money. See also: Interest Rate Cost of funds Interest rate associated with borrowing money. helped excess spread levels. Average excess spread levels ballooned bal·loon n. 1. a. A flexible bag designed to be inflated with hot air or with a gas, such as helium, that is lighter than the surrounding air, causing it to rise and float in the atmosphere. b. significantly, increasing by 190 bps to 8.5%, the highest point since the index was created. Excess spread levels are healthiest among the subprime trusts, given the potential increase to volatility in losses. Even so, all trusts but one reported excess spread levels above 4.00% in October, with many of the prime issuers running three-month average excess spread levels of more than 6.50%. In addition, payments rebounded, given the extra collections days. Payment rates for October jumped 130 bps to 16.2%, closer to its rolling three-month average. Despite growing concern over a softening softening /sof·ten·ing/ (sof´en-ing) malacia. softening a change of consistency, with loss of firmness or hardness. economy, consumers are still paying down their credit card debt Credit card debt is an example of unsecured consumer debt, accessed through ISO 7810 plastic credit cards. Debt results when a client of a credit card company purchases an item or service through the card system. at a healthy pace, and payment rates continue to hold steady. STANDARD & POOR'S CREDIT CARD QUALITY INDEXES Distribution date 11/15/99 11/15/00 09/15/01 10/15/01 11/15/01 Performance month Oct 99 Oct 00 Aug 01 Sept 01 Oct 01 Outstandings (Bil. $) 300.3 332.0 366.6 366.1 373.2 Yield (%) 20.0 20.3 20.0 18.9 20.0 Charge-offs (%) 5.5 5.4 6.5 6.5 6.8 Weighted base rate (% ) 7.5 8.4 6.0 5.8 4.7 Excess spread (%) 6.9 6.5 7.5 6.7 8.5 Delinquencies (%) 4.8 4.6 5.1 5.1 5.3 Payment rate (%) 16.2 16.5 16.7 14.8 16.2 |
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