Magazine article American Banker

Credit Card Losses Appear Set for a Big Decline

Magazine article American Banker

Credit Card Losses Appear Set for a Big Decline

Article excerpt

Byline: Harry Terris

Credit card loss rates at the nation's largest issuers could drop 10% to 33% from a year earlier this autumn, if the slowed pace at which borrowers have been falling behind recently is an accurate guide.

For most of 2010, the number of accountholders who are late by more than one month but less than two has been shrinking faster than would be indicated by typical seasonal patterns, continuing an apparent turn in the credit cycle that began last year.

In a report published June 7, Matias Langer, an analyst at Moody's Investors Service, wrote that estimates of future chargeoffs based on such earlystage delinquencies, and the proportions in which they have translated into balances that are deemed uncollectible and written off five months later (about 57% on average from September through March), "confirm" that chargeoffs peaked in the first quarter.

Using May figures for securitized receivables that issuers posted on June 15, it appears that Bank of America Corp.'s chargeoff rate, which has been the worst among the big-six card lenders during an era of record industry losses, is due for the biggest improvement in the group through October (see chart).

So far this year, B of A's chargeoff rate has averaged 56% of the portion of its accounts that were in earlystage delinquency five months before. With that delinquency rate having decreased 36 basis points from December to 1.44% in May, B of A's annual chargeoff rate is poised to fall 359 basis points from May to 9. …

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