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General Electric Co. last week removed 2 million underperforming private-label retail credit card accounts worth $1.5 billion from its securitized master trust, returning them to issuer GE Money Bank's balance sheet, according to a recent report by Fitch Ratings Inc. Most credit card issuers fund loans by packaging credit card receivables into securitized trusts, temporarily moving them off their balance sheets to free up capital. The unusual move underscores the deteriorating economic conditions for retail credit card portfolios, especially for nonbank issuers, analysts say. Stamford, Conn.-based GE moved accounts that were delinquent, nearing charge-off status or demonstrating low payment rates from four of its largest private-label retail card programs, including J.C. Penney Co. Inc., Lowe's Cos. Inc., and Wal-Mart Stores Inc. and its Sam's Club division, according to Fitch. Before removing the troubled accounts, GE's retail credit card master trust had 47 million accounts worth about $20 billion in receivables. GE's move was voluntary, Cynthia Ullrich, a senior director for U.S. consumer asset-backed securities for Fitch, tells CardLine. After GE removed the troubled accounts, Fitch assigned a "stable rating outlook" to GE's securitized credit card master trust, she notes. "It is uncommon to see accounts moved out of a master trust, but this action likely will improve the master trust's performance," Ullrich says. The charge-off rate on outstanding receivables in GE's securitized retail card master trust stood at 10.58% at the end of February, its second-highest level since losses peaked in Dec. 2005 at 11.55% after the government revamped U.S. bankruptcy laws. GE, which did not return calls for comment, in 2007 announced plans to sell its retail credit card portfolio, which includes revolving private-label credit card programs for some two dozen retailers. No takers have emerged, but Robert K. Hammer, CEO of the Thousand Oaks, Calif.-based advisory firm R.K. Hammer, tells CardLine GE likely will close or sell off the troubled accounts it moved back to its balance sheet, which could marginally improve the portfolio's marketability. "This was a logical and prudent move for GE, but frankly I'm surprised they didn't get rid of a bigger proportion of troubled accounts," Hammer says. "Private-label cards tend to have higher-than-average delinquency and charge-off rates, and chances are good that GE has quite a few more bad loans on the books it should have cut. This is a pretty small number."
