Defaults on U.S. credit cards touched a 15-month low while late payments improved further last month, according to the latest Credit Card Index results from Fitch Ratings. The results were broadly driven with all of the major card issuers exhibiting month-over-month improvements.

"The trends are encouraging, but card defaults are still elevated historically and are expected to remain so," said Managing Director Michael Dean. "Unemployment will continue to weigh on consumer credit quality throughout the rest of this year and well into 2011."

Senior credit card ABS ratings are expected to remain stable given available credit enhancement, loss coverage multiples, and structural protections afforded investors. The outlook for subordinate tranches remains moderately more negative.

Late stage delinquencies trended lower for the seventh consecutive month while hitting a 19-month low, setting the stage for continued chargeoff improvement in the coming months. Fitch's 60+ day delinquency index decreased another 10 basis points (bps) to 3.76% during the July collection period while early stage delinquencies also continued to decline, with 30+ day delinquencies decreasing for the fifth consecutive month by another 13 bps to 5.00%. Similar to the previous month, all but one credit card issuer that make up Fitch's index, with the exception of Washington Mutual Master Note Trust, reported lower delinquency rates for the month.

Fitch's Prime Credit Card Chargeoff Index dipped below the 10% mark for the first time in 15 months for the July collection period. The decline marked the second month over month improvement as chargeoffs fell another 92 basis points (bps) to 9.65%, which marked a 16-month low. The larger trusts that make up the index, including Bank of America, Chase, Capital One, Citibank and Discover, all reported lower default rates for the month. At its current level, the chargeoff index still remains more than 60% above its long term historical average of 5.88%.

Gross yield receded slightly for the month of July, but still reported the third highest level historically. Gross yield was at 22.48%, a 19 bp decrease but remained 16% higher year over year. The results of discount option and repricing initiatives from different issuers continue to inflate yield performance. That being said, "Gross yield could fall by up to 10% in the coming months as to regulatory and legislative changes take hold," said Director Herman Poon.

Although gross yield declined slightly this month, the continued chargeoff improvement helped to offset the level of one month excess spread as it improved another 71 bps to 9.99%, marking yet another historic high. Accordingly, the three month average excess spread surged above the 9% level. At 9.27% during the month with an increase of 62 bps, this enabled the average to also record its highest level ever. Excess spread performance has improved for the sixth straight month and is 90% higher than the same period last year.

Monthly payment rate (MPR) performance remained relatively stable, but managed a marginal increase of 9 bps in July and reached a level not seen in over two years. This level represented a 8% increase compared to the same period last year. Consistent with seasonal patterns, the slight rise is due to a higher number of collections days during the July collection period.

Fitch's Prime Credit Card index was established in 1991 and tracks more than $214 billion of prime credit card ABS backed by approximately $298 billion of principal receivables. The index is primarily comprised of general purpose portfolios originated by institutions such as Bank of America, Citibank, Chase, Capital One, Discover, HSBC, etc.

Performance in retail credit card ABS remained stable in July, with delinquencies and chargeoffs improving further from the prior month. Late payments declined for the sixth consecutive month while defaults posted another improvement for the third straight month. Late stage delinquencies for July fell only 3 bps to 4.65%, but marked a 22 month low. Chargeoffs declined significantly, posting the biggest month over month improvement since March 2009, with a 120 bps decrease to 11.74%. Early stage delinquencies maintained its level at 6.71%.

Gross yield worsened for the second straight month and slipped another 22 bps to 25.26%. Similarly, MPR performance declined slightly, reporting a small decrease of 5 bps to 14.17%.

Monthly excess spread recovered after a one-month drop the prior period, reporting an increase 77 bps to 8.30%. Additionally, the three-month average excess spread also improved marginally to 7.94%. This level is approximately 4% higher compared to the same period last year.

Fitch's Retail Credit Card index tracks more than $41 billion of retail or private label credit card ABS backed by approximately $54 billion of principal receivables. The index is primarily comprised of private label portfolios originated and serviced by Citibank (South Dakota) N.A., GE Money Bank, HSBC Bank Nevada, N.A. and World Financial Network National Bank. More than 165 retailers are incorporated including Wal-Mart, Sears, Home Depot, Federated, Loews, J.C. Penney, Limited Brands, Best Buy, Lane Bryant and Dillard's, among others.

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