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The new Term Asset Backed Loan Facility the U.S. Federal Reserve and U.S. Department of the Treasury announced yesterday (CardLine, 11/24) is a good step toward unfreezing issuance of new credit card loans, but it does not address all the uncertainties issuers face, analysts say. TALF, as federal officials dubbed the facility, will lend up to $200 billion to holders of AAA-rated asset-backed securities that lenders sell to help fund their credit card, auto, student and small-business loans. "This is potentially huge for the credit card industry," Ken Paterson, director of the credit advisory service at Maynard, Mass.-based Mercator Advisory Group Inc., tells CardLine. "It addresses a real issue for many issuers, which is their inability to fund credit card loans through securitization." But Paterson remains worried the facility may not be ready to operate until February. "That's a concern because the crunch is now," he says. Dennis Moroney, research director at Tower Group, an independent research firm owned by MasterCard Advisors, agrees the new lending program is helpful because asset securitization represents about 50% of card issuers' capital for backing card loans. But unfreezing the asset-backed securities market does not address the many other challenges and uncertainties plaguing card issuers, he notes. Those include rising card balances coupled with increasing default rates in a worsening economy, higher required minimum payments, changes in accounting rules by the Financial Accounting Standards Board, and new legislative constraints on issuance and pricing of credit cards that are more likely to pass the House and Senate in the next session. "There's too much uncertainty in the market," Moroney tells CardLine. "It's like barnacles on a ship. It's not any individual barnacle; it's the cumulative effect of all of these changes that become a problem."
