Highlights from Global Capital

Abstract

Credit card ABS issuance has “fallen off a cliff” over the last year, declining by 35.9%, according to Bank of America, from roughly $42bn in 2018 to $26bn in 2019. The decline was largely driven by large bank sponsors like Citibank preferring to fund card receivables with cheap retail deposits rather than through securitization, BofA analysts wrote in a 2020 outlook report. For example, JPMorgan Chase removed $13bn of receivables from their Chase Issuance Trust in October, “another sign of a shift in funding preference,” analysts added. The steep decline in issuance from large bank sponsors is likely to continue through 2020, said John McElravey, senior analyst at Wells Fargo. Analysts are expecting credit card ABS volume to stay muted this year, in the range of $23bn–$35bn. Coinciding with the drop in primary issuance has been a sharp decrease in secondary trading activity. “[Secondary] volumes are actually down as trading would increase with issuance,” a consumer ABS trader told GlobalCapital. “[Credit card ABS] used to be the benchmark sector, but has been diminishing with a decline in issuance. This year doesn’t look much better for issuance either as the big issuers (Citi, Bank of America, JPMorgan) all have cheaper funding alternatives.” While the lack of supply will make it harder for investors to trade smaller BWICs, investors who want to obtain a big chunk of credit card ABS of $500m–$750m can usually work with the bank sponsors to meet their needs. “What usually happens is if the investor has a specific need that is big in size, they end up going directly to the primary market,” said an ABS analyst. “[Credit card ABS] is a reverse inquiry model. That’s why you see a lot of credit card deals sold before they are announced.” Going into 2019, 17% of investors surveyed by JPMorgan said that they were looking to add exposure to credit card ABS in the coming year. Headed into 2020, that number has increased to 21%. For many market participants, credit card is the most noteworthy “wild card” this year that will determine the overall ABS supply. “On the one hand, new issue volumes have historically tracked maturities and with $5 billion less reaching maturity in 2020, this Highlights from