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Moody's: US credit card charge-offs fall in January, early-stage delinquencies reach another record low

24 Feb 2012

Payment rate reaches all-time high

New York, February 24, 2012 -- In January, US credit card charge-offs declined to 4.98%, the lowest level since November 2007, according to Moody's Credit Card Indices. Early-stage delinquencies also fell to new record lows, pointing to further declines in charge-offs in the months ahead.

Moody's expects the charge-off rate to continue to fall well into the coming year, eventually moving to below 4% by the end of 2012.

"We expect the improvement in credit card performance to continue throughout 2012, although the rate of improvement will slow as the year goes on," says Jeffrey Hibbs, a Moody's Assistant Vice President and Analyst.

Charge-offs at each of the six largest credit card programs (Big 6) are at least 30% lower than they were a year ago, because of the attrition of weaker quality credits from collateral pools.

The charge-off rate measures those credit card account balances written off as uncollectible as an annualized percentage of total outstanding principal balance.

The delinquency rate rose slightly by two basis points in January, to 2.93%, after declining to the lowest level in the 23-plus year history of Moody's Credit Card indices last month. However, early-stage delinquencies at the Big 6 trusts were flat or even lower, with the index down by three basis points from December 2011, setting another all-time low.

The delinquency rate measures the proportion of account balances for which a monthly payment is more than 30 days late as a percentage of total outstanding principal balance. The early-stage delinquency rate measures the proportion of account balances for which a monthly payment is 30 to 59 days late as a percentage of total outstanding principal balance.

The payment rate index rose for the second straight month, more than reversing the four previous months of decline. After this month's 50 basis point increase to 22.08%, the payment rate index is now at an all-time high, and is another positive credit indicator, especially in light of the rise in both consumer spending and card balances during the holiday months.

The payment rate measures the average amount of principal that cardholders repay each month, as a percentage of total outstanding principal balance.

The yield index declined to 17.90%, its lowest mark since April 2009, primarily because of the expiration of Discover's discounting mechanism in January, which compounded normal seasonal weakness and resulted in a sharp, 123-basis point decline. None of the Big 6 trusts are discounting principal collections on newly generated receivables any longer, although some trusts are still discounting principal collections on existing receivables.

Yield is the annualized percentage of income, primarily finance charges and fees, collected during the month, as a percentage of total loans.

After holding at a nearly all-time high of more than 11% for eight months, the excess spread index also declined, to 10.08%, the lowest level since the seasonal low of April 2011. However, even at its current level, the excess spread index remains quite healthy and well above historical norms. Moody's expects the excess spread index to increase as charge-offs continue to fall as the year progresses.

Excess spread is a measure of the overall performance of securitized pools of credit card receivables.

Moody's latest Credit Card Indices, titled "Credit Card Charge-offs Lower in January, Payment Rate Reaches All-Time High," is available on www.moodys.com.

***

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

Jeffrey Hibbs
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Luisa De Gaetano
VP - Senior Credit Officer
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
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JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's: US credit card charge-offs fall in January, early-stage delinquencies reach another record low
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