Thursday, July 2, 2009

Bank of America Leads in Default Rate Rise


Analysts are picking through fresh credit card data and in search of reasons for optimism buried in otherwise ugly data. There aren’t many.

Dow Jones Newswires’ Ed Welsch looked closely at a research note out from Bernstein Research analyst John McDonald. He writes:

Credit card default rates continued to rise in May, reaching 10.1%, a 0.83 percentage point rise and up 4.58 percentage points y/y. BofA (BAC) saw the largest increase among major issuers, rising two percentage points from April. The average delinquency levels fell slightly to 5.83%, but this isn’t always a positive, Bernstein Research says, as it could just be a reduction in “sloppy payers,” reducing late fee revenue while charge-offs continue to rise. Given continued deterioration in unemployment, and monthly personal bankruptcies remaining at the 120,000+ level set in March, Bernstein says higher losses are in the pipeline for card issuers. Firm forecasts a peak of 11.25% in mid-2010.

At first glance, there did seem to be some bright spots in the data — for instance those delinquency trends to the downside. But Robert W. Baird & Co. analysts weren’t overly excited, writing that they “attribute the improvement to seasonality as consumers’ use of tax refunds to pay down revolving debt. More consistent with the challenging economic environment and employment trends, we expect delinquencies to demonstrate incremental degradation going forward.”