Metris Cos. has announced an agreement to purchase $330 million of credit card loans from KeyCorp.
The portfolio consists of 18% of KeyCorp's card customers, mainly people the Cleveland-based company deemed not part of its geography, executives said last week.
After the sale, scheduled to be completed in the next few weeks, KeyCorp would have $1.5 billion of card receivables.
"In light of the current credit quality environment affecting the card industry, we have decided to focus this business within our core banking franchise," KeyCorp chairman Robert W. Gillespie said in a statement.
Terms and other details were not disclosed.
Metris, a card company that specializes in marketing financial services to low- and middle-income consumers, is making the latest of several acquisitions. Observers of the company say the agreement with KeyCorp reflects Metris' continued interest in growing its customer base.
The St. Louis Park, Minn.-based issuer is known for its expertise in marketing to consumers with meager credit histories or damaged credit ratings. It manages a delinquency rate of about 10%.
The KeyCorp accounts perform "slightly better" than the rest of Metris' $2.1 billion portfolio, said Ronald N. Zebeck, president and chief executive officer.
Metris is prepared for high losses, Mr. Zebeck said. The company's collections department is 30% larger than it needs to be. "We know we are going to grow, and we want to be ahead of that curve," he said.
Metris was spun off last year from catalogue marketer Fingerhut Corp., which owns an 85% stake.
The KeyCorp deal shows Metris "is looking for acquisitions actively," said David S. Hochstim, an analyst with Bear, Stearns & Co. "It gives them a quick increase to their customer base (to which) they are interested in selling fee products," said Mr. Hochstim.
This year Metris, a MasterCard issuer, bought a portfolio of about 25,000 Visa accounts from the credit union that represents the American Electronics Association.
Industry sources say Metris is also close to completing another purchase of $450 million of outstandings from Mercantile Bancorp of St. Louis.
The Mercantile and KeyCorp portfolios would increase Metris' receivables by more than 30% in just a few months.
Still, outside observers question whether Metris really knows what it is doing in a subprime market that most of its mainstream competitors keep at arm's length.
Credit card consultant Donald M. Berman said, "It is one thing to originate in this market, and another to buy a portfolio. The margin for error is less when you purchase card accounts."
Mr. Berman, of Cardholder Management Services, Plainview, N.Y., said Metris' main competitors in the subprime market, Providian Financial Corp. and Capital One Financial Corp., are not buying such portfolios.
Metris views portfolio acquisitions as a means to sell ancillary products such as credit card registration.
"We look at cards as a way for us to generate new fees," Mr. Zebeck said.
