the subprime market got a nice mention in this week's credit bubble bulletin
prudentbear.com
Over at AmeriCredit, things are quickly going from bad to much worse. The company reported a $27.6 million loss, quite a deterioration from the previous quarter’s $70 million profit. Combined delinquencies and foreclosures rose to 14.7% of managed receivables, up from the third quarter’s 12.2%. Total dollars delinquent actually rose about 24% during the quarter, while Total Charge-offs jumped 15% to $236.6 million. Year-over-year, charge-offs were up 82%. The fact that the company continues to lend aggressively and grow receivables makes the rapid Credit deterioration all the more alarming. Year-over-year, managed receivables were up 36% to $16.2 billion. Receivable growth has slowed, however, with the past quarter’s 2.9% (11.6% annualized) down sharply from the previous quarter’s 6.7% (26.8% annualized). Slowing growth is today's kiss of death for subprimie lending.
For those of us who have watched this company since its early days as a used car dealer in Fort Worth (U-Car-Co), it is rather incredible that near failure in the early nineties was transformed by Wall Street structured finance into a company with managed receivables of over $16 billion. We’ll stick with our view that subprime lending is not a viable business over the entire business cycle, and that the securitization and Credit insurance market have only transformed subprime into a bad business with much larger, systemic consequences. It is worth noting that behemoth Credit insurer MBIA jumped into the fray by providing insurance on a $1.7 billion securitization in October, MBIA’s first deal with AmeriCredit. The Credit insurers (and the holders of their insured bonds) will regret ever conjugating with subprime lending. What could they have been thinking?
From AmeriCredit’s CEO: “We’re seeing continued weakness in recovery values on repossessed vehicles and in the overall economy, causing increases in both loss severity and frequency.” If Only... the Fed could create sufficient money to “reflate” the value of used automobiles…
And if AmeriCredit’s numbers are dreadful, they are absolutely horrendous at Metris. December charge-offs actually jumped 264 basis points during the month to a rate of 21.25%. Charge-offs were up an amazing 469 basis points in two months. But, then again, this is what subprime lenders should today expect when they hit the wall and lose the capacity to extend additional loans (raise maximum lending limits) to their bad Credits.
And while continued aggressive lending is postponing the day of reckoning, the Capital One train wreck remains firmly on course. Fourth Quarter Net Charge-Offs surged 30.6% from the previous quarter to $896 million, as the charge-off rate increased from 4.96% to 6.21%. Similar to AmeriCredit, the degree of deterioration in the face of strong receivable growth is disturbing. Total Managed Receivables expanded 5% (20% annualized) during the quarter to $59.7 billion, with y-o-y growth of 32%. Yet charge-offs were up 73% y-o-y, with estimated dollars delinquent up almost 50%. The buoyant securitization market has been a lifesaver for sustaining needed lending growth. Total assets increased by less than $500 million (all financed by deposits!) during the fourth quarter, up only 1% quarter-over-quarter (y-o-y 33%). Capital One is today running frantically but barely staying ahead of a gritty pack of loan losses. It appears to us that Credit Problems hasn’t even broken a sweat. |
