Rising job losses, volatile energy prices, and the absence of refinancing options like low-rate balance transfers and home equity loans means a higher proportion of delinquent accounts are translating into U.S. credit card portfolio losses, according to Fitch Ratings in a new report.

Fitch expects credit metrics will continue to deteriorate in fourth quarter-2008 and into 2009, with some issuers surpassing historical loss peaks before 2009 is over. A turn in the cycle will be heavily dependent upon the duration of an economic downturn and the severity of the increase in the unemployment rate.

'Recently announced government-led intervention programs are expected to ease the funding strain for some large card issuers, but lenders are expected to remain cautious on portfolio growth in 2008 and 2009,' said Director Meghan Crowe. 'Many issuers have ramped-up deposit growth and retail funding efforts in recent months in order to reduce reliance on the ABS markets.'

Fitch expects a greater proportion of maturing ABS debt may be re-financed on-balance sheet in 2009. Competition for deposits is expected to intensify as many financial institutions attempt to shore-up cheaper sources of liquidity. Increased demand for deposit funding will likely result in pricing pressure over time. Issuers are expected to remain flexible by closely monitoring pricing rationalization in the ABS markets.

While asset quality metrics have deteriorated and funding costs have increased, large credit card issuers have generally maintained Stable Rating Outlooks, as portfolio risks have been offset with greater contingent liquidity and higher capital levels. Fitch anticipates rating pressure will mount over the remainder of 2008 and into 2009 as economic headwinds negatively impact consumer credit. Declines in profitability which are not offset by enhanced liquidity and capitalization could prompt negative rating actions.