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Comparison of default rates among banks

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Super Contributor

Comparison of default rates among banks

Interesting article about upsurge in credit card and auto loan defaults, with chart comparing Synchrony, Capital One, Bank of America, Chase, and American Express:

https://www.bloomberg.com/gadfly/articles/2017-04-12/rising-credit-card-charge-offs-pose-1-trillion-...

 


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Valued Contributor

Re: Comparison of default rates among banks

You know what it is, I think we may finally have our answer as to what's been making the lenders antsy and AA-prone lately. The data about Synchrony is particularly interesting, I wish we had similar information for Comenity as I'd be willing to lay down a bet that they're getting default rates similar to or higher than Synchrony's.

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Valued Contributor

Re: Comparison of default rates among banks

Excellent article SJ! I just posted something similar. 


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Moderator Emeritus

Re: Comparison of default rates among banks

And then ... you tie up over $503,000K in credit limits chocking off the market place for others! The shame of it all Smiley Wink

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Senior Contributor

Re: Comparison of default rates among banks

When I first looked at the charts (graphs) I noticed that the companies with the highest APR's and lowest lending standards were the ones with the higher and growing default rates - then reading the aritcle that point was made several times. High risk, high APR, higher charge offs are expected and happened - the rates for prime lenders are still very low. Keep in mind that most of this debt is bundled and sold as bonds including car loans, "subprime" carries the highest return for investors with an expected higher default rate. 

 

Should be interesting to watch a complete cycle of a year or two....

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Moderator Emeritus

Re: Comparison of default rates among banks


@pipeguy wrote:

When I first looked at the charts (graphs) I noticed that the companies with the highest APR's and lowest lending standards were the ones with the higher and growing default rates - then reading the aritcle that point was made several times. High risk, high APR, higher charge offs are expected and happened - the rates for prime lenders are still very low. Keep in mind that most of this debt is bundled and sold as bonds including car loans, "subprime" carries the highest return for investors with an expected higher default rate. 

 

Should be interesting to watch a complete cycle of a year or two....


CC portfolio gets bundled up? Smiley Happy

 

If you meant other subprime stuff, you betcha, though I would note neither Cap 1 nor Discover are all that subprime, and certainly not deep subprime not even close.  That's places like these cats whose bonds I was looking at today and wondering if they'd manage to payout or default in the next two years haha:

 

http://www.ccfi.com/




        
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Senior Contributor

Re: Comparison of default rates among banks

http://www.dbrs.com/research/263252/u-s-credit-card-asset-backed-securities.pdf

 

While I would NOT consider Discover "sub-prime" by any means, I would consider much of Capitol One's porfoilo sub-prime - not in the same way as Credit One or First Premier vulture sub-prime, but 60% of Cap-1's business is credit cards and their over all interest rates and lending standards (credit cards and auto loans) are not exactly Chase or Amex. 

 

Don't know about today, but up until recently the hottest debt backed bonds were sub-prime auto loans - even wit the expected higher default rates by borrowers, the interest paid (return) on these bonds were worth the risk to investors with this specific bond booming as far as demand. I don't have a link handy, but I've read a couple articles on the subject within the last 12 months (WSJ, Marketwatch, Forbes all ran stories if I remember correctly). 

 

Edit/add: Here is a recent story: 

 

https://www.bloomberg.com/news/articles/2017-03-28/-deep-subprime-becomes-norm-in-car-loan-market-an...

 

And another from last Fall::

 

http://wolfstreet.com/2016/10/03/subprime-auto-loan-backed-securities-turn-toxic-delinquencies-losse...

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Moderator Emeritus

Re: Comparison of default rates among banks


@pipeguy wrote:

http://www.dbrs.com/research/263252/u-s-credit-card-asset-backed-securities.pdf

 

While I would NOT consider Discover "sub-prime" by any means, I would consider much of Capitol One's porfoilo sub-prime - not in the same way as Credit One or First Premier vulture sub-prime, but 60% of Cap-1's business is credit cards and their over all interest rates and lending standards (credit cards and auto loans) are not exactly Chase or Amex. 

 

Don't know about today, but up until recently the hottest debt backed bonds were sub-prime auto loans - even wit the expected higher default rates by borrowers, the interest paid (return) on these bonds were worth the risk to investors with this specific bond booming as far as demand. I don't have a link handy, but I've read a couple articles on the subject within the last 12 months (WSJ, Marketwatch, Forbes all ran stories if I remember correctly). 

 

Edit/add: Here is a recent story: 

 

https://www.bloomberg.com/news/articles/2017-03-28/-deep-subprime-becomes-norm-in-car-loan-market-an...

 

And another from last Fall::

 

http://wolfstreet.com/2016/10/03/subprime-auto-loan-backed-securities-turn-toxic-delinquencies-losse...


Well even as an individual investor when times are good I go slumming.  If you were investing in bonds, junk / subprime was where the money was at, IG ones haven't paid much of anything in recent years, barely better than CD rates.

 

That wolfstreet article was right around the time my Lending Club investments started going south, but I didn't recognize that fact until December.  I need to pay more attention obviously Smiley Happy.




        
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