Review 2006: Asset-Backed Securities Market Defied Predictions
Jalili, H. Michael, American Banker
Many had expected the near extinction of credit card monolines, caused by a wave of acquisitions in 2005, to lead to a decline in issuance of credit card asset-backed securities and possibly make them irrelevant.
After all, companies like MBNA Corp., Providian Financial Corp., and Metris Cos. Inc., which lacked retail deposit-gathering networks, relied on the asset-backed market to raise funds for credit card lending. The same could not be said about the large banking companies that bought them.
Yet credit card securitization volume either fell only slightly or actually increased last year, depending on whose numbers you use.
Figures compiled by the weekly newsletter Asset Backed Alert show that U.S. issuance of credit card asset-backed securities rose more than 16% last year, to about $78.3 billion. According to Thomson Corp., U.S. credit card bond issuance slipped just 1.5%, to $67 billion.
Cynthia Ullrich, a director of research at Fitch Inc., said that in the first 11 months of the year banks had issued $60.4 billion of credit card asset-backed securities in the United States. For all of 2005, Fitch tracked a total of $56.5 billion of such credit card issues.
"Initially, we thought that the acquirers of the monolines wouldn't be active in the securitization of the market, but in fact they've been very active," Ms. Ullrich said.
Analysts said the biggest reason for this surprising trend is that pricing for the securities was highly favorable.
"Credit card ABS spreads continued to grind tighter through 2006," said Jeff Salmon, an analyst with Mellon Financial Corp. "Issuers were getting very attractive funding costs by doing asset-backed securities, and that was the key catalyst."
Bank of America Corp., which bought MBNA on Jan. 1 of last year, was the most active in the sector, issuing almost $19.9 billion during the year, according to figures supplied by Asset Backed Alert. In 2005, MBNA ranked second, with almost $10 billion, Thomson Corp. …