A new report shows that large regional U.S. banks posted record earnings in the fourth quarter driven by strong loan growth and continuing excellent asset quality, listless noninterest revenues and good expense controls. The report from Standard & Poor’s Ratings Services says the net interest margin remained flat for the industry as a whole, with roughly half of the banks within this group reporting incremental improvement and the other half reporting continued pressure. However, S&P doesn’t anticipate any meaningful asset quality deterioration across the sector in the near term. S&P noted that nonperforming asset levels are the lowest they’ve been in years and net charge-off levels are about as good as they’re going to get.
Maple Leaf Heritage Investments Acquisition Corporation has issued a
formal response to the board of directors of Hudson’s Bay Company after
the rejection of Heritage’s all-cash offers for HBC’s outstanding common
shares and 7.5% convertible unsecured subordinated debentures due December
1, 2008. The response was communicated in an open letter to HBC
shareholders and debentureholders. Heritage urged HBC securityholders to
demonstrate their support by tendering to its offers by the expiry time on
December 29, 2005. Maple Leaf Heritage Investments ULC is a wholly-owned
subsidiary of B-Bay, Inc., a Nova Scotia unlimited liability company
established to acquire common shares of HBC.
A new report suggests that U.S. credit card asset-backed securities issuance could be headed to a six-year low with total volume of $50 billion in 2005. Standard & Poor’s had earlier predicted $69 billion for this year but now says the market is running 16% lower at mid-year. S&P says the growth rate for the card industry has been fairly flat, the explosive growth in home equity lines of credit and the continuation of cash-out mortgage refinancing has provided additional liquidity for homeowners to pay down their credit card debt; and the industry is consolidating. Despite the changing landscape, S&P says ABS performance is expected to remain stable.
The deterioration of key credit performance metrics in the receivables of First Consumers National Bank card bonds have accelerated at an alarming pace during the past four months. The trust’s principal payment rate fell to 3.11% in June from 9.28% in February. The charge-off rate reached its current peak in June at 25.34%, and total delinquencies have increased to 18.36% from 13.63% in February 2003. The trust yield, which historically averaged above 30%, has also declined to its current level of approximately 21%, according to Standard & Poor’s Ratings Services, which lowered its ratings on all classes of First Consumers Master Trust’s series 1999-A and First Consumers Credit Card Master Note Trust’s series 2001-A.
While Spiegel’s First Consumers National Bank is pulling the plug on more than 700,000 VISA and MasterCard accounts today, the move will not affect its $2.3 billion retail credit card portfolio which includes the Eddie Bauer, Spiegel Catalog, and Newport News cards. FCNB was notified February 14th by the OCC to liquidate its bank credit card portfolio. The OCC required FCNB to stop accepting new credit card applications and stop granting credit line increases to any of its existing credit card accounts; and to notify its existing cardholders that FCNB will not accept any new charges on their accounts after April 1st. Meanwhile, Standard & Poor’s Ratings Services lowered its ratings on all classes of First Consumers Master Trusts. However, the closing of the underlying bank card accounts may have some short-term positive impact on the portfolio payment rate if higher quality obligors pay off their accounts in full or complete balance transfers. In the longer term, S&P believes it will most likely have a negative effect, resulting in adverse selection from reduced payment collections and fewer creditworthy obligors remaining in the pool. In addition, eliminating the cardholder’s ability to use the card for purchases and cash advances may also reduce the incentive to repay the loan to keep the credit line open and may lead to higher charge-offs. A slowdown in obligor repayments will likely extend the ultimate repayment period of the ABS transactions and increase the loan loss exposure period. First Consumers is the 28th largest bank credit card issuer in the USA, according to CardData ([www.carddata.com]), with 1,439,479 accounts and $1,059,783,754 in outstandings as of 12/31/02. (CF Library 2/22/02; 4/23/02; 8/23/02; 3/5/03)
NextCard credit card-backed securities have been downgraded again as payment rates declined to 4.8%, while delinquency and gross charge-off rates have increased to 18.80% and 28.10% during December. Trust yield, which historically averaged approximately 19.15%, prior to June 2002, has fluctuated dramatically during the past seven months, ranging between 8.96% and 20.35%. Therefore, Standard & Poor’s Ratings Services yesterday lowered its ratings on all classes of NextCard Credit Card Master Note Trust’s asset-backed notes series. Class A notes have be moved to “BBB+” and Class D notes have been moved to “CCC.” Unable to find a buyer for NextCard’s portfolio, the FDIC, in July, closed the underlying credit card accounts open-to-buy. On Aug. 1st, First National Bank of Omaha was appointed the successor servicer for NextCard for a 2% per annum servicing fee. The conversion process between NextCard and FNBO was completed by the end of September, at which time the FDIC terminated all of its responsibilities as subservicer. The OCC closed NextBank on Feb. 7th, 2002 and the FDIC was appointed the receiver. (CF Library 2/8/02; 2/11/02; 3/14/02; 6/10/02; 7/3/02; 7/11/02; 11/18/02)
Standard & Poor’s yesterday cut the ratings on some of Metris/Direct Merchants Bank credit card-backed bonds to junk status. Metris stock is now hovering at $3.75 per share, down nearly 87% from its 52-week high. Metris, a sub-prime credit card specialist, reported a charge-off rate of 16.56% and a delinquency rate of 11.63% for the latest performance cycle. The increased charge-off rate has negatively affected excess spread rates, causing excess spread levels to fall from their two-year average of 7.18% to a current three-month average of 5.93%. S&P says the performance trends have deteriorated during the past two years with more pronounced deterioration during the past six months, as the Metris Trust has reported increased delinquency and charge-off rates. While the Metris Master Trust-related transactions continue to benefit from a lower interest rate environment, the lower base rate costs have not wholly offset the trust’s increased charge-off rates. As a result, despite having a lower cost of funds, the excess spread levels for the trust continue to drop.
Standard & Poor’s Ratings Services has downgraded Metris credit card securitizations due to adverse performance trends. The Metris Master Trust has displayed deteriorating performance trends during the past two years, but the deterioration has been more pronounced during the past six months.
U.S. credit card asset-backed securities market should reach roughly $70 billion in 2002, up from $66 billion in 2001. Standard & Poor’s says issuance was down slightly in the first half but 60% of the total credit card refinancings will occur in the second half of this year. Bank One tops the refinancing list for transactions expected to mature in 2002 at close to $8 billion, followed by MBNA at $5.5 billion, and Citibank at $4.8 billion. Although Standard & Poor’s Credit Card Quality Index loss rates have trended upward since the end of the third quarter of 2001, losses have started to stabilize and, on average, portfolio yield, payment rates, and excess spread remain healthy. Currently, average bankcard losses are 6.6% and may go up as high as 7.2%.
Standard & Poor’s has lowered its ratings on all classes of NextCard’s credit card asset-backed notes in the 2000 and 2001 series. S&P also warned that base-rate triggers may be breached and since there has been no announced sale of the trust portfolio, the underlying credit card accounts are likely to be closed unless the NextBank receivership can obtain additional capital to fund future purchases by cardholders. Despite a static yield curve and declining base rate, the excess spread rate displayed by both series has continued to fall precipitously during the past six months, and is currently at negative 0.76% for series 2000-1 and negative 0.81% for series 2001-1. The excess spread decline is mainly the result of rising gross charge-offs (currently 16.61% as of the June distribution date). Losses may also increase further as the percentage of the collateral pool, which is greater than 90 days past due, displays an increasing trend and is currently at 4.50%. NextBank’s receiver, the FDIC, has requested and received four bids on the bank’s and the trust’s portfolio of credit card receivables, in an attempt to liquidate the bank’s assets. No sale has been announced as of this morning. (CF Library 2/8/02; 2/11/02; 3/14/02; 6/10/02)
The FDIC has received bids from four firms for NextCard’s $1.9 billion bank credit card portfolio. The defunct issuer’s credit card-backed securities were also downgraded Friday as the 90+ day delinquency rate within the collateral pool hit 4.37%. The FDIC is now in the process of establishing a final bid proposal for the four finalists. The NextCard portfolio consists of $1.2 billion in securitized receivables and approximately $700 million in bank owned receivables, according to CardData ([www.carddata.com]). Standard & Poor’s Friday revised its CreditWatch status on all classes issued by NextCard Credit Card Master Note Trust’s asset-backed notes series 2000-1 and series 2001-1 to CreditWatch with negative implications from CreditWatch with developing implications. S&P says it is concerned about the deteriorating excess spread rate and the rising delinquency. S&P says the probability of both NextCard series breaching their respective base rate triggers during the next few months is likely, especially if the FDIC fails to complete the sale of the trust receivables in the near term. The OCC closed NextBank on Feb. 7th and the FDIC was appointed the receiver. NextCard tried to find an acquisition partner after regulators determined last year that the bank was undercapitalized. The OCC said NextBank was classifying some delinquent accounts sold into a securitization trust as fraud losses, although the delinquencies were actually attributable to credit quality problems. These assets were being repurchased by the bank at par, a practice that constituted sale of assets with recourse. The OCC also found significant accounting adjustments and the need for additional loan loss reserves which resulted in the bank being undercapitalized. In January, NextCard notified the OCC that it was not possible to prepare and submit a “Capital Restoration Plan,” and said liquidation of the bank’s assets would not raise enough money to retire, in-full, the bank’s existing and anticipated liabilities. (CF Library 2/8/02; 2/11/02; 3/14/02)
Standard & Poor’s announced this morning it has placed First Consumers National Bank’s credit card-backed securities on CreditWatch with negative implications. Last month, The Spiegel Group, FCNB’s parent, confirmed it is looking to unload its credit card business following rapid deterioration and a significant earnings shortfall in FCNB’s sub-prime credit card portfolio. During the past two years, the underlying pool of FCNB credit card receivables has experienced decreasing yield and payment rates and increasing delinquency and chargeoff rates. As of the February reporting period, the total delinquency rate was at 14.29%, which is 572 basis points higher than January 2000’s delinquency rate of 8.57%. Concurrently, the gross chargeoff rate has increased to its current level of 18.20%, up from 11.90% in January 2000. At the same time, the yield on the portfolio has declined steadily during the same time period, averaging approximately 30% during the past year. This decreasing yield, combined with a relatively static base rate and an increasing chargeoff rate, has negatively affected spread rates, causing it to fall dramatically from its high of 20.60% in July 1999 to its current rate of 5.17% in February 2002. Lastly, the total payment rate displayed by the master trust has also displayed dissipating trends, falling steadily to its current rate of 11.07% from 17.92% in March 1999. The Spiegel Group reported a total loss from discontinued operations of $396.3 million in the fourth quarter, which primarily consists of a $310.5 million anticipated loss on the sale of the credit card portfolio. At year-end 2001, FCNB had $1,269,428,449 in credit card outstandings and 1,073,499 active accounts, according to CardData ([www.carddata.com]). (CF Library 2/22/02)