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Credit card charge-offs and delinquencies will continue to rise this year and through the first half of next year as issuers scramble to control further losses, exacerbated by rising unemployment rates, according to a report released today by Fitch Ratings Inc. In its third-quarter Asset Quality Review for the credit card industry, Fitch wrote that issuers are deliberately slowing their portfolio growth and attempting to stem charge-offs by reducing promotional programs such as low-rate balance-transfers offers, adjusting interest rates and fees and fine-tuning rewards programs to encourage loyalty and on-time payments. The trend of rising credit card charge-offs and delinquencies will likely increase through the first half of next year, as consumers face falling home pries, volatile energy costs, rising unemployment levels and more-limited credit availability, the report said. "The degree of relative deterioration will be dependent upon an issuer's ability to manage portfolio growth, control exposure to unused credit lines and collect delinquent accounts," Fitch wrote. Major credit card issuers face higher charge-off and delinquency risks in California and Florida, which together represent 18% of the U.S. population, were among the states hit hardest by housing-price declines. In those states, major issuers have slowed portfolio growth and have begun tracking borrowers by mortgage type, where that information is available, to help minimize further losses by limiting credit lines to the riskiest borrowers. The U.S. unemployment rate reached 6.1% in September, up 140 basis points from the same period a year earlier, and Fitch notes that since credit card charge-offs generally rise along with unemployment, more charge-offs are likely if unemployment continues to rise, as many economists predict. The report also said that JPMorgan Chase & Co.'s credit metrics will probably deteriorate when its credit card portfolio is combined with that of recently acquired Washington Mutual Inc., because WaMu "has a higher loss profile given a heavy exposure to subprime borrowers." The report said that the WaMu portion of the portfolio will likely benefit from Chase's account management and collection strategies.
