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Asset Acceptance Capital Corp., which buys delinquent consumer debt including charged-off credit card accounts, posted a lower-than-expected quarterly profit, as cash collections dropped.
For the second quarter ended June 30, the debt purchaser reported earnings of $0.8 million compared with $2.1 million in the year-ago period. Asset Acceptance, based in Warren, Mich., reported cash collections of $87.3 million in the quarter, an 8% decrease from $95.2 million in the second quarter of 2008.
"As unemployment continues to increase we are seeing a negative impact on our liquidation rates, especially in the older vintages where there is decreased collection leverage due to the age of the accounts," CEO Rion Needs said in a statement. "However, we believe we will have strong returns on our investments in paper purchased in recent quarters because of our stated strategy of carefully controlling our levels of purchasing in order to save dry powder for the second half of 2009 and full year 2010, which has allowed us to be selective in the portfolios we have acquired."
The company paid $20 million during the quarter to purchase charged-off consumer debt portfolios with a face value of $727.9 million. Last month, Mark Redman, the company's senior vice president and chief financial officer, told CCR Newsline that the company "carefully controlled our levels of purchasing [in the first half of the year] ... to free up capital to purchase at what we expect will be more advantageous pricing in the second half of 2009 and early 2010."
Debt portfolio prices are expected to fall not only because of struggling consumers and increases in defaults and charge-offs, but also because of a lack of financing for Asset Acceptance and its rivals, which is depressing deal activity in the sector, several analysts tell CCR Newsline.
Collectors depend on banks to fund their purchases and with credit markets still tight, they are finding it more difficult to borrow on reasonable terms. But having raised billions of dollars as a result of the government's stress tests, banks are now more willing to sell their portfolios at lower prices and take hits to their balance sheets, according to the analysts.
