by Calculated Risk on 11/05/2007 02:05:00 PM

Fitch Press Release: Credit Uncertainty May Begin Affecting U.S. Non-Mortgage ABS

U.S. structured finance sectors that have so far been immune to the subprime market troubles may show signs of vulnerability due to rising uncertainty about credit conditions, along with income and employment prospects, according to Fitch Ratings in its latest Credit Action Report.

'Economic growth was strong during the third quarter in spite of housing and credit market weakness, but tighter credit conditions will likely put a damper on consumer spending and lead to a deteriorating labor market outlook,' said Director Kevin D'Albert. 'Additionally, increased uncertainty about income and employment prospects may put a crimp in consumer spending, which in turn may adversely affect various consumer ABS segments.'

For the time being, however, non-mortgage ABS remains resilient as performance in prime segments is expected to remain positive through early part of next year, though subprime auto and credit card ABS may be under the microscope with delinquencies and losses expected to rise. Elsewhere, strong fundamentals are still evident in U.S. CMBS as performance remains strong, though Fitch also expects an uptick in delinquencies in 2008 (albeit off of historical lows) in part due to less available capital.

Maybe Fitch should have just checked with Professor Roubini: The bloodbath in credit and financial markets will continue and sharply worsen

... calling this crisis a sub-prime meltdown is ludicrous as by now the contagion has seriously spread to near prime and prime mortgages. And it is spreading to subprime and near prime credit cards and auto loans where deliquencies are rising and will sharply rise further in the year ahead. And it is spreading to every corner of the securitized financial system that is either frozen or on the way to freeze: CDOs issuance is near dead; the LBO market – and the related leveraged loans market – is piling deals that have been postponed, restructured or cancelled; the liquidity squeeze in the interbank market – especially at the one month to three months maturities - is continuing; the losses that banks and investment banks will experience in the next few quarters will erode their Tier 1 capital ratio; the ABCP and related SIV sectors are near dead and unraveling; and since the Super-conduit will flop the only options are those of bringing those SIV assets on balance sheet (with significant capital and liquidity effects) or sell them at a large loss; similar problems and crunches are emerging in the CLO, CMO and CMBS markets; junk bonds spreads are widening and corporate default rates will soon start to rise. Every corner of the securitization world is now under severe stress, including so called highly rated and “safe” (AAA and AA) securities.

What happened to containment?