Moody's Corporation · NYSE:MCO
Moody's — Coronavirus Live Webinar Series (May 2020)
36 slides from Moody's's conference presentation, May 5, 2020
Slide 1: The Impact of the COVID-19 Recession on Consumer Credit
The Impact of the COVID-19 Recession on Consumer Credit David Fieldhouse, PhD, Business Analytics May 2020 James Partridge, PhD, Risk & Accounting Solutions
Slide 2: Coronavirus Live | Webinar Series
Coronavirus Live | Webinar Series Research Program Schedule Live Q&A www.moodys.com/coronavirus events.moodys.io/coronavirus Engage with the speakers and Sign up once and get weekly updates get your questions answered The Impact of the COVID-19 Recession on Consumer Credit 2
Slide 3: Today's Speakers
Today’s Speakers David Fieldhouse, PhD James Partridge, PhD Director Director Moody's Analytics Moody's Analytics The Impact of the COVID-19 Recession on Consumer Credit 3
Slide 4: Agenda
Agenda 1. Setting the Stage 2. How Will the Various Asset Classes Fare? 3. Performance Across Regions 4. Prime and Subprime Lending 5. The Effect of Lender Assistance Programs 6. Key Take-aways The Impact of the COVID-19 Recession on Consumer Credit 4
Slide 5: Setting the Stage
Setting the Stage
Slide 6: Unemployment Soars
Unemployment Soars Initial unemployment insurance claims, thousands, log-scale 10,000 695,000 5,051,170 Previous high from Weekly average October 2nd, 1982 between March 21st and April 25th 1,000 100 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 Sources: Employment
Slide 7: Delinquency Rates Track Unemployment Claims
Delinquency Rates Track Unemployment Claims Annualized (%) 60 day dlq rate, unemployment claims/labor force (mil) 20 25,000 60-day delinquency (L) Normalized claims (R) 16 20,000 12 15,000 8 10,000 4 5,000 0 0 06 07 08 09 10 11 12 13 14 15 16 17 18 19 Sources: CreditForecast.com, BLS, Moody’s Analyt
Slide 8: Credit Scores Higher Than Financial Crisis
Credit Scores Higher Than Financial Crisis Current credit scores, Sept 08 and Jan 20, balance weighted 2008 2020 750 Auto 725 First Mortgage HELOC 700 HE Loan Bank Card 675 Retail Card Consumer Installment 650 Consumer Revolving Other 625 600 Sources: CreditForecast.com, Moody’s Analytics The Impact
Slide 9: Household Finances Are Solid
Household Finances Are Solid Debt service burden ratio, mortgage and consumer, percent 8 Mortgage Consumer 7 6 5 4 Even credit card utilization is 87 basis points lower now than when Lehman Brothers collapsed. 3 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 Sources: Federal R
Slide 10: Unsecured Lending and Auto at Risk
Unsecured Lending and Auto at Risk 60 days delinquent, % of outstanding balance, 12-mo MA 1.8 Retail card Bank card Consumer finance First mortgage Auto 1.5 1.2 0.9 0.6 0.3 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Sources: CreditForecast.com, Moody’s Analytics The Impact of the COVID-19 Recession o
Slide 11: How Will the Various Asset Classes Fare?
How Will the Various Asset Classes Fare?
Slide 12: Consumer Will Demand Less in 2020
Consumer Will Demand Less in 2020 Percent change from yr ago, April Baseline 20 New vehicle sales, # Retail sales (ex. auto), $ Mortgage purchase originations, $ 0 -20 -40 -60 -80 -100 Q1 Q2 Q3 Q4 Sources: CreditForecast.com, Moody’s Analytics The Impact of the COVID-19 Recession on Consumer Credit
Slide 13: Household Debt Levels Forecasts to Decline
Household Debt Levels Forecasts to Decline Balances of open accounts, y/y % of $, April Baseline 15 Residential Bankcard Consumer finance Retail Auto Student 10 5 0 -5 -10 16 17 18 19 20 21 Sources: CreditForecast.com, Moody’s Analytics The Impact of the COVID-19 Recession on Consumer Credit 13
Slide 14: Card Losses Will Mimic the Great Recession
Card Losses Will Mimic the Great Recession Gross loss rates, annualized, percent 20 18 16 14 12 10 8 6 4 2 S1 Baseline S3 2009-10 Average 2019 Average 0 2020 2021 Sources: CreditForecast.com, Moody’s Analytics The Impact of the COVID-19 Recession on Consumer Credit 14
Slide 15: Auto Loans Losses Could be Historically High
Auto Loans Losses Could be Historically High Gross loss rates, annualized, percent 12 S1 Baseline S3 2009-10 Average 2019 Average 10 8 6 4 2 0 2020 2021 Sources: CreditForecast.com, Moody’s Analytics The Impact of the COVID-19 Recession on Consumer Credit 15
Slide 16: Changes in Loss Rates Vary Greatly by Asset
Changes in Loss Rates Vary Greatly by Asset Lifetime loss rate, Baseline, percent Sources: ECCL, Moody’s Analytics The Impact of the COVID-19 Recession on Consumer Credit 16
Slide 17: Performance Across Regions
Performance Across Regions
Slide 18: Regional Risk Factors for COVID-19
Regional Risk Factors for COVID-19 Virus Exposure Demographics Poverty Rate Commodities Small Business Tourism Trade/Travel Disruptions The Impact of the COVID-19 Recession on Consumer Credit 18
Slide 19: Some States Face Higher Risk
Some States Face Higher Risk Weighted average z-score across rankings Percentile <15th 15th to 30th 30th to 45th 45th to 60th 60th to 75th 75th to 90th >90th Note: the value for DC is above the 90th percentile The Impact of the COVID-19 Recession on Consumer Credit 19
Slide 20: Housing Markets Matter
Housing Markets Matter Default rate, yoy percent difference, April 2020-2021, first mortgage Percentile <15th 15th to 30th 30th to 45th 45th to 60th 60th to 75th 75th to 90th >90th Note: the value for DC is above the 75th percentile The Impact of the COVID-19 Recession on Consumer Credit 20
Slide 21: Highly Exposed States Vulnerable
Highly Exposed States Vulnerable Gross loss rates, bank card, percent, April Baseline relative to March 2.5 2.0 1.5 1.0 NY NV KS 0.5 2020 2021 Sources: CreditForecast.com, Moody’s Analytics The Impact of the COVID-19 Recession on Consumer Credit 21
Slide 22: Prime and Subprime Lending
Prime and Subprime Lending
Slide 23: Subprime Default Share Trends Down
Subprime Default Share Trends Down Default balances (left, bil), change in share (right, pp), bank card 4.5 0 4.0 -1 3.5 -2 3.0 -3 2.5 -4 2.0 -5 1.5 -6 1.0 -7 Balances, Baseline Balances, S3 0.5 Change in share, Baseline Change in share, S3 -8 0.0 -9 2020 2021 Sources: CreditForecast.com, Moody’s An
Slide 24: Prime Loans More Sensitive in Auto
Prime Loans More Sensitive in Auto Default rate, % of outstanding balance, 12-mo MA, April Baseline 0.8 0.12 620-659 780-809 0.10 0.6 0.08 0.4 0.06 0.04 0.2 0.02 0.0 0.00 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 Sources: CreditForecast.com, Moody’s Analytics The Impact of the COVID-19 Recession
Slide 25: The Effect of Payment Assistance Programs
The Effect of Payment Assistance Programs
Slide 26: Lender assistance can take various forms
Can take various forms: interest relief, balance forgiveness, deferred payments, modifications Assistance provides liquidity relief for borrowers If this stress is temporary, losses may be avoided Otherwise, losses are simply delayed When does it make sense to offer additional relief?
Slide 27: How Might Lender Assistance Affect Loss Rates?
How Might Lender Assistance Affect Loss Rates? Hypothetical paths for loss rates 250 Status quo 200 Lump payment Pause 150 100 50 0 2020 2021 The Impact of the COVID-19 Recession on Consumer Credit 27
Slide 28: Forbearance Has Started to Pick Up
Forbearance Has Started to Pick Up Share of accounts reported as affected on April 21st Sources: Equifax, Moody’s Analytics The Impact of the COVID-19 Recession on Consumer Credit 28
Slide 29: Forbearance Has Started to Pick Up
Forbearance Has Started to Pick Up Share of accounts reported as affected on April 21st Sources: Equifax, Moody’s Analytics The Impact of the COVID-19 Recession on Consumer Credit 29
Slide 30: Key Take-aways
Key Take-aways
Slide 31: Key Take-aways
Key Take-aways Losses will not be proportional to the Q2 unemployment rate Low demand and tight supply in 2020 Unsecured and Auto are at risk Regions matter Scope and impact of payment assistance remains uncertain
Slide 32: Questions & Answers
Questions & Answers
Slide 33: Coronavirus Live
Coronavirus Live events.moodys.io/coronavirus Moody’s coronavirus@moodys.com Webinars Full webinars schedule events.moodys.io events.emea@moodys.com The Impact of the COVID-19 Recession on Consumer Credit 33
Slide 34: We Want to Hear From You!
We Want to Hear From You! Please complete our survey A survey will appear on your screen at the end of our presentation. Please take a few moments to complete it and let us know how we can continue to improve. The Impact of the COVID-19 Recession on Consumer Credit 34
Slide 35: moodys.com
David Fieldhouse, PhD James Partridge, PhD Director Director Business Analytics Risk & Financial Accounting david.fieldhouse@moodys.com james.partridge@moodys.com moodys.com
Slide 36: The Impact of the COVID-19 Recession on Consumer Credit
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