Shares of First USA Inc. gained Monday after officials of the credit card company told analysts they might consider selling the company's merchant processing business.
First USA's chairman and chief executive, John Tolleson, said the bank would look at all possible opportunities to enhance value, including a partial or complete spinoff of that business, according to analysts who attended the meeting Friday at the company's headquarters in Dallas.
One analyst said that the company valued the merchant processing business at approximately $500 million.
The credit card company's stock rose 87.5 cents to close at $47.25 on Monday, while the Standard & Poor's bank index fell 0.74%.
Analysts emphasized that the company is far from committed to putting the business on the block.
"They've been asked about it often in the past," said Janet McCabe, a bank analyst at Legg Mason Wood Walker. "They view the entire business as an integrated whole. I wouldn't expect them to spin that off."
Others noted, however, that the credit card company's stock price doesn't reflect the value of merchant processing operations and that spinning off the business would be one way to give shareholders the appropriate reward.
Analysts estimated that other merchant processors' stock sells for about 20 times earnings, while the stock of credit card companies has dropped to about eight to nine times earnings amid concern about increases in delinquent card accounts.
David Berry, a bank analyst at Keefe, Bruyette & Woods Inc. who said he doubts First USA will sell the unit, pointed out that the company is the only credit card specialist that hasn't sold its merchant processing business.
"It wouldn't be out of line with the rest of the industry," he said.
Even if the company does not sell the business, some analysts said that, by raising the possibility of a sale, it may be trying to drive up the share price by forcing the investment community to focus on the higher- valued business.
Mr. Berry attributed the gains in the stock on Monday to the benefits of direct communication with analysts and investors.
"These meetings remind people what a nifty company this is," said Mr. Berry. "There's a real dedicated effort to using the latest in technology."
Additionally, analysts said that First USA's stock has lagged behind that of other mono-line credit card companies, such as Advanta and Capital One, and that Monday's gains may just have reflected the company's attempt to make up some of that difference.
Meetings with analysts can be a good way to do that. "These meetings can have a very positive impact," said Mr. Berry, who added that a recent analyst's meeting with Bankers Trust new chairman Frank Newman boosted the bank's stock for several days.
"It just brings the name back to everyone's attention," said Mr. Berry.
Some analysts suggested that First USA demonstrated its readiness for a possible change in the consumer credit cycle.
"People went away from the gathering feeling positive and constructive about the company's ability not to have to lower estimates even if the environment gets worse," said Moshe Orenbuch, a credit card analyst at Sanford C. Bernstein & Co.
Separately, Citicorp's stock fell $2.06 on Monday to close at $67.75.
Last week, Citicorp announced the resignation of Christopher J. Steffan, and the promotion of Victor Menezes to chief financial officer.
Analysts said that other personnel changes might follow.
