The Pig is Still in the Python...

Implications: Credit Card delinquency and chargeoff rates are still tracking below historic highs.  There are signs that 2007 account vintages, especially those at or near subprime scores, may be among the worst performing vintages ever.  Card issuer guidance on delinquencies, writeoffs and loan loss provisions may be inadequate.

Analysis: Credit Card delinquency and chargeoff rates are still tracking below historic highs.  There are signs that 2007 account vintages, especially those at or near subprime scores, may be among the worst performing vintages ever.  Delinquency and chargeoff rates in accounts booked in late 2006 through 2007 will reach peak levels over the next 12 months, meaning there is a “pig in the python”.   How will major card issuers fare?  Those with the tightest underwriting criteria will certainly have a hedge – but writeoff rates are tracking higher for all score levels.  Bankruptcy reform will help mitigate losses somewhat versus previous downturn periods, but there is good reason to believe chargeoffs will approach historic highs.  Most issuers are not giving guidance (or reserving) at those levels, meaning there could be some earnings surprises as issuers take larger-than-planned losses and/or are forced to increase loss provisions.