Fitch Ratings, the people who were so wrong about subprime mortgages, remain guardedly optimistic about credit card profits, and the performance of securitized credit card receivables, expecting credit card yield spread to remain “robust.”
Prime credit card issuers are paying less for their funds, by about 2.5%, as a result of Fed rate cuts. Meanwhile, their yield from credit card customers has gone down only by 36 basis points, i.e. 0.36%. This was accomplished, according to Fitch, because “card issuers have proven adept at managing their yield through pricing initiatives and dynamic strategies implemented to reflect changes in card usage over time. . . . Yield consists of collected finance charges, fees and interchange revenue.” In other words, card issuers are adept at NOT passing cost savings along to consumers.
Charge-offs for unpaid credit card bills are just now returning to the pre-bankruptcy-reform levels of 2005, but are projected to rise rapidly in the coming months. Fitch remains confident that securities rated BBB and above have plenty of built-in loss protection. Even so, I won’t be buying any credit card ABS securities just now.
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