Reuters logo
Fitch: U.S. Consumer Strength Moderates Credit Deterioration
July 20, 2017 / 2:39 PM / 4 months ago

Fitch: U.S. Consumer Strength Moderates Credit Deterioration

(The following statement was released by the rating agency) NEW YORK, July 20 (Fitch) The continued financial resilience of the U.S. consumer has prolonged a period of extremely strong asset quality among many U.S. consumer lending segments, says Fitch Ratings. However, U.S. consumer loan losses at financial institutions are at unsustainable cyclical lows and a more meaningful amount of credit deterioration should be expected over the near to medium term. This will particularly be the case should unemployment claims begin to reverse after reaching multi-decade lows. The extent to which weaker credit performance will be a challenge for individual consumer lenders will vary depending on the diversity of their lending activities and the extent to which they have strengthened capital and loss reserves to absorb higher losses. Their willingness to tighten underwriting standards in recent quarters in anticipation of a weaker macroeconomic environment will also be a key factor. Reflecting these dynamics, Fitch believes diversified banks are better positioned than monoline lenders to weather meaningful erosion in consumer asset quality. <iframe allowfullscreen src="//e.infogram.com/us_financial_obligations_ratio?src=embed" title="US Financial Obligations Ratio" width="550" height="611" scrolling="no" frameborder="0"> Overall, the U.S. consumer's financial condition is stronger than it was prior to the last recession. Unemployment is near cyclical lows, the consumer savings rate (savings as a percentage of disposable income) is in line with the long-term average, the financial obligations ratio (debt service as a percent of disposable income) is below the long-term average and consumers' net worth is at all-time highs as a result of strong stock market performance and home price appreciation. Fitch maintains its view that U.S. GDP growth will rise in 2017 and 2018. Increases in interest rates unaccompanied by meaningful economic growth and expanding wages could pressure consumer asset quality as it would result in increased debt service (for floating-rate obligations) and elevated refinancing risk without the benefit of higher income to absorb these costs. We believe that recent Fed rate hikes are part of long-term monetary policy normalization that is aligned with current macroeconomic conditions and the outlook. <iframe allowfullscreen src="//e.infogram.com/us_consumer_debt_load?src=embed" title="U.S. Consumer Debt Load" width="550" height="674" scrolling="no" frameborder="0"> In first-quarter 2017, U.S. consumer debt returned to its pre-crisis peak of $12.7 trillion after falling to a post-crisis low of $11.2 trillion in 2Q13. The student loan and auto segments have had the most pronounced increases, although credit card debt has also accelerated recently. Between fourth-quarter 2008 and first-quarter 2017, student loan debt more than doubled to $1.3 trillion while auto loans increased by 48% to $1.2 trillion. Over the same period, the much larger mortgage component of consumer debt declined by 6.8% to $8.6 trillion from a peak of $9.3 trillion, reflecting substantially tighter underwriting amid increased regulation and the exit of many non-bank lenders. Fitch believes that credit cards and auto loans, particularly retail credit cards and subprime auto loans, will be the consumer loan segments most likely to see asset quality deterioration in the near to medium term. Higher loss rates and delinquencies have already begun to materialize. Drivers of weaker credit performance include stronger loan growth in recent years, increased competition leading to looser underwriting standards in the post-financial crisis period (including greater exposure to subprime borrowers) and, in the case of auto lending, residual values that have been supported by unsustainably high used vehicle prices. According to Federal Reserve surveys, banks have begun tightening underwriting standards in both segments over the past several quarters. <iframe allowfullscreen src="//e.infogram.com/net__of_us_domestic__banks_tighteningloose ning_auto_underw riting_standards?src=embed" title="Net % of U.S. Domestic Banks Tightening/Loosening Auto Underwriting Standards" width="550" height="690" scrolling="no" frameborder="0"> The potential systemic impacts of a rapid deterioration in either credit card or auto lending are limited relative to pre-crisis residential mortgage lending. Both segments are much smaller than residential mortgage debt with shorter loan durations and smaller loan balances. Contact: Nathan Flanders Managing Director Financial Institutions + 1 212 908-0827 Fitch Ratings 33 Whitehall Street New York, NY Michael Taiano Director Financial Institutions +1 646 582-4956 Justin Patrie, CFA Senior Analyst Fitch Wire +1 646 582-4964 Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278, Email: sandro.scenga@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below