Credit Card Chargeoffs Continue to Rise; 10% Rates May be Seen in 2009

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Credit card chargeoffs are continuing to grow, with no immediate signs of any change despite some improvement in overall financial institutional performance in the last couple of months.
Financial institutions will likely be looking to sell off more of their credit card debt, however, Kaukin Ginsberg analyst Dimitri Michaud said that large supply of portfolios mean that debt sales will continue their trend of weak pricing.
“There doesn’t appear to be any sign of this trend slowing down,” Michaud said, pointing out that while many consumers have cut back on spending, they aren’t cutting back as fast as their earning power is eroding. Earning power continues to drop as people lose jobs and part-time workers lose hours – meaning less earning power, even if they are still employed.
“Chargeoffs have been increasing steadily since 2007,” Michaud added. Michaud monitors credit card performance for his Credit Card Performance Index (CCPI), part of the Kaulkin Ginsberg Consumer Finance Report. The CCPI tracks the performance of securitized credit card receivables for the nation’s 10 largest credit card master trusts. The latest CCPI showed continued weakness in all three CCPI components: the card charge off rate was at 8.43 percent, the delinquency rate was 6.38 percent and the recovery rate was 0.54 percent.Major credit card issuers have also reported deterioration in credit card performance.

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