Debt Portfolio Pricing Down as much as 50%; Further Drops Forecasted
The price to purchase portfolios of charged-off credit card debt has dropped dramatically from Q1 ’07 to Q1 ’09. Does that sentence seem overplayed to you? We’ve all been hearing it in the ARM industry ad nauseam. But few have been able to offer specific numbers on the trend of declining portfolio prices.
In Q1 ’09, prices for freshly charged-off credit card accounts dropped on average 50 percent from a year ago, reaching the point where they are now nearly aligning with liquidation rate declines. Prices are down as much as 60 percent or more from the first quarter of 2007, to a range of $0.05 to $0.07 for fresh credit card paper.
A number of factors are leading to the sharp drop in prices. Principally, liquidation rates are down and buyers are simply not willing to pay as much for an asset that is underperforming. Liquidation rates have dropped on average 55 to 65 percent on fresh credit card debt since the first quarter of 2007.
Buyers are also continuing to find it tough to secure financing for portfolio purchases, and when they do, it is considerably more expensive. This has strained demand for debt portfolios at a time when supply is plentiful, further reducing prices.
Virtually all stages of delinquency have seen price declines in the debt buying market. Secondary and tertiary portfolios are down nearly 70 percent since the first quarter of 2007. Quads are now being sold at a range that dips below a penny. And we believe this trend will continue in 2009 as a result of further liquidation declines driven by ongoing economic turbulence and higher unemployment rates.
The Advisory Team at Kaulkin Ginsberg, myself included, will be discussing these numbers in even greater detail tomorrow at 1pm Eastern in our executive conference call. We’ll be covering specific price ranges for credit card debt across delinquency stages, liquidation rates for ARM firms through the first quarter of this year, the reasons for declines in both, and what you can do to navigate this tricky environment.
You will also get an update on M&A activity in the ARM industry and a detailed look at the financial health of the U.S. consumer. To learn more about the call -- or to register -- please visit http://www.insidearm.com/go/executive-conference-calls/arm-industry-update.
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Comments
Comment from Edhow2@aol.com on April 21, 2009 at 9:46PM EST
Would love to know the average price for different credit cards dependant upon write off date,last collection effort date, primary, secondary, tertiary etc.
Comment from Patrick Lunsford on April 22, 2009 at 7:51AM EST
To Edhow@aol.com:
That information will be shared on and distributed to participants of the conference call, Wednesday, April 22, 1pm Eastern.
Comment from J Pratt 89 on April 23, 2009 at 10:17AM EST
How does the fact that credit card originations are down by 80% since October 2008 play into the forecast?
I asked this question before to one of these posts but never received an answer. However, in forecasting isn't it a consideration?
On the last October originations first payment defaults have already began coming in. More will stack behind. However, if there are less originations then forecasting should consider the soon shrinking pool.
Can anyone give an opinion?
Comment from barbara Wilson on April 23, 2009 at 9:07PM EST
Is this a good time to purchase, and how much should i have to pay on the dollar.
Barbara Wilson