Structured finance: The credit card trick
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CAPITAL MARKETS

Structured finance: The credit card trick

Credit card ABS has so far escaped contamination by sub-prime. Some might worry that volumes are up, but key metrics are strong. If this market does well, it could be a template for others. Alex Chambers reports.

The course of consolidation


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AS THE YEAR draws to a close to bite so the nightmare caused by the sub-prime crisis gets ever more scary. The post-summer rally following the Federal Reserve’s rate cuts is now a distant memory as the credit/liquidity crisis takes on yet more twists and turns. Banks have revealed more losses – largely a consequence of the rating agencies announcing fresh downgrades of asset-backed bonds and ABS CDOs, and from further deterioration in the market value of those securities. The level of dislocation means that sub-prime is more than just a bad dream; fears for the health of the biggest financial institutions are growing and the odds of a US recession are rising fast. Yet an amazing disconnect has emerged between mortgages and the other structured finance stalwart asset class of US consumer credit – credit cards.

On the one side sits sub-prime – the most tainted term and asset class in financial markets. Securities that contain any sub-prime collateral are shunned, even by vulture funds. The financing of an entire class of borrowers is under threat, forcing policymakers to rush to find new ways of funding mortgages.


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