Courtesy of Chuck Young From Rebel Traders
Moodys places all classes of the company’s credit card securities on review for possible downgrade
The move will impact about $64.4B of asset-backed securities. These securities are backed by a $93 billion revolving pool of unsecured consumer general purpose bank credit card receivables.
The review is primarily driven by a pronounced acceleration of the Trust’’s charge-off rate in recent months. Specifically, the gross charge-off rate jumped by almost 50% in the past three months alone, up from 9.6% in March to 14.1% in June. The steepness of the recent trend in charge-off rates was unexpected and falls outside Moodys recently revised expectations.
Moodys expects delinquencies will soon resume an increasing trajectory and quickly erase the seasonal improvements that have been posted in the past two months.
Moodys continues to have a negative outlook for the credit card industry and, in its base case, call for a recovery of the credit card sector to begin once industry average charge-offs peak in mid-2010 at about 12%. This forecast is largely driven by macroeconomic indicators, in particular, a coincident peak in the unemployment rate of around 10%.
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