Few big card portfolio deals have come down the pike this year like Mellon Bank Corp.'s $230 million acquisition of 480,000 accounts from U.S. Bancorp in March.
In fact, investment banker Robert K. Hammer expects only 20 portfolio sales of Visa and MasterCard accounts this year - two more than in 1994.
"If you look at the last nine years, supply and demand seems to be driving these," said Mr. Hammer, chairman and chief executive of R.K. Hammer, Investment Bankers, Newbury Park, Calif. "The fewer the deals, the higher the price tends to be."
He estimates that from 1986 to 1994, there were 156 deals accounting for $22.3 billion of assets sold. He tracks transactions over $15 million.
The small number of deals each year from a pool of more than 6,000 issuers reflects a sound industry whose earnings and yields are strong, Mr. Hammer said.
Assets sold have declined considerably in the last five years, Mr. Hammer said. "We suspect that the large growth in securitization has increased in direct proportion to the decline in card assets sold during the same period."
In 1994, Mr. Hammer found 18 transactions for a total of $750 million. The average weighted gross premiums last year was 18%, he said, which will rise to 20% this year. But they range from 7% to 25%.
"The volume of transactions is up and so is the asset quality of portfolios being purchased," said Mr. Hammer, "and therefore, so is the price.
"I think it says good things about the industry," he said, "people are willing to pay the prices because they think they can earn a lot on the assets."
But it has been the high prices that have kept Wachovia Corp. out of the market, noted Beverly Wells, president of its bank card services group.
Jane Turner, vice president and director of acquisition and control for Norwest Bankcard, said the Norwest Corp. subsidiary looks for portfolios that are priced right to complement its accounts. "But we're not going to make huge bids for portfolios right now."
Even if the portfolios are priced right, many of them are not put out to bid, said Collin McKenny, senior vice president of Star Bank, which she pointed out, was the case with the Mellon-U.S. Bancorp deal.
"There isn't a lot available on the market," she said, adding that the Cincinnati-based bank has expressed interest in two sales this year.
One credit card executive said he keeps waiting for a big wave of portfolio sales, given recent prime rate hikes and increases in the cost of funds. "You would think people would be bailing out of their portfolios, but they're not."
Smaller issuers have been hanging onto their accounts, or entering agent bank relationships to stay in the game. Ms. Wells said they may be less likely to sell out if companies such as Jerry Craft's consulting firm, Card Issuer Program Management Corp. in Atlanta, keep popping up to offer them assistance in managing their accounts.
"Banks are recognizing they can make a higher percentage on credit card portfolios than from installment loans or commercial loan portfolios," Ms. Turner said. "Therefore, they're holding onto their accounts."
Issuers are selling pieces of their portfolios to clean up existing files, explained one analyst. They do this because the accounts are not performing up to standards or they want to create marketing dollars, he added.
Fewer banks are selling their entire card portfolios outright as American Savings Bank of Stockton, Calif., did last year when it sold its entire $140 million credit card portfolio to GE Capital.
The price portfolios secure depends on credit quality, source or origin of accounts, maturity of accounts, and portfolio size, among other factors, Mr. Hammer said.
Banks strategies differ on what to look for in a portfolio. "In our case," said Ms. McKenny of Star Bank, "we're looking primarily in the Midwest. It's even better if there's an opportunity to enter an ongoing relationship to generate accounts down the road."
