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From the September 2008 Issue
To improve the marketability of securitized loans, most card issuers are working to offset their overall risk exposure, analysts say.
Capital One Financial Corp., for example, added more-aggressive new pricing and fee policies last year, which Richard D. Fairbank, chairman and CEO, told analysts in July was helping to offset rising delinquencies this year. And American Express Co. Chairman and CEO Kenneth I. Chenault also told analysts in July that the issuer is being very "surgical" in its underwriting policies, including adjusting borrowers' credit lines to weed out future losses.
"Solid securitization depends on healthy portfolios, and issuers need to take a much closer look at what factors are causing losses in their portfolio to determine if delinquencies are the result of permanent, temporary or catastrophic conditions," says Edmund Tribue, global practice leader for MasterCard Advisors' Global Credit Risk Practice. "Based on good analysis, issuers can take the correct action, whether that involves working things out with the borrower by changing repayment terms or softening fees, or writing off the loan."
Some 60% of issuers are restricting credit lines to existing cardholders to offset losses during the economic downturn, and some 70% are reducing cardholder-
acquisition efforts for the same reason, says Bruce Cundiff, director of payments research and consulting for U.S.-based Javelin Strategy & Research.
"Issuers must find a balance between profitability from interest income and minimizing default risk, which means focusing on the right customers and helping them stay current on their accounts," Cundiff says. CP
