SEPTEMBER 2004

Continued Improvement in
Credit Card Account Performance

Monthly credit card loan performance indices reported by Moody's Investors Services continued a positive trend in June. The Moody's indices are derived from the performance of over $400 billion of securitized credit card receivables. The 30+ day delinquency rate measure marked its eleventh consecutive month of year-over-year improvement—the last four of which have shown double digit improvement. Moody's reported that 4.37 percent of bank credit card loans in June were 30 or more days past due, 75 basis points lower than in June 2003 and the lowest rate since June of 2000. The June 2004 charge-off rate fell 46 basis points from a year earlier to 6.41 percent, the seventh consecutive month of year-over year declines. As displayed in the figure below, the delinquency and charge-off rates for the second quarter of 2004 both declined from the previous year—14.9 percent and 5.5 percent, respectively. William Black, Moody's senior credit officer expects that the favorable performance trend will continue, "[t]he sustained improvement in the payment rate and the delinquency rate over the past year, in addition to the strong performance of the cardholder loss rate since late 2003, confirms the well-entrenched cycle of improving performance in the credit card sector."

The Fitch Ratings credit card index for the June 2004 collection period also saw a decline in chargeoffs from previous-year levels. In addition, Fitch's measure of the more serious 60+ day delinquency rate, "a measure of future chargeoffs," fell 58 basis points from June 2003 to 2.86 percent—its lowest level since August of 2000. Like Moody's "...Fitch Ratings expects consumer credit quality to maintain its stability, with improvement over the near term in both the prime and subprime sectors."

David Wyss, Standard & Poor's chief economist and Sung Won Sohn, Wells Fargo & Company's chief economist both told the American Banker that the key to maintaining the positive trends in credit quality is jobs. Wyss noted that "...the unemployment rate is 5.5 percent, down from 5.6 percent, which is below its historical average... [w]ith interest rates still low, people are in pretty good shape." By the end of the year, Sohn expects 1.5 million new jobs leading to an increase of $150 billion in wages and salaries and his forecast for lower delinquencies depends on it: "If [September's employment] report is weak, the economy will be in somewhat greater difficulties then we anticipated."

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