Bank of New York Co. agreed yesterday to sell its ailing credit card portfolio to Chase Manhattan Corp., ending months of speculation that the two banks were negotiating a deal.
Terms were not disclosed, but analysts estimated that Chase agreed to pay a premium of 9% for the $4 billion portfolio, earning Bank of New York about $340 million.
Bank of New York's decision to unload its credit card loans followed an announcement on Monday by another major player-AT&T Corp. -that it was putting its $14.2 billion card portfolio on the block.
Together, the two portfolios represent 7% of the industry's card receivables.
"This says that if you are not one of the top players, you don't have the marketing expertise, and if on top of that you have high losses, you are going to have a tough business proposition," said Moshe Orenbuch, an analyst at Sanford C. Bernstein & Co.
Though both Bank of New York and AT&T were once considered premier players in the credit card industry, both recently had problems with credit losses and implementing effective marketing programs.
Bank of New York's card troubles began last year when it lost a cobranding contract with the AFL-CIO. After a 10-year relationship, the labor union decided to take its affinity credit card, Union Privilege, to Household International's Household Credit Services unit.
The move shrank Bank of New York's card business by nearly half, dropping it to 21st among card issuers.
"You have to make a decision to either grow the business or exit it," said a Bank of New York spokesman. "With the strong potential we see in our securities processing and corporate banking businesses, we made the decision to put the resources behind them."
Chase, for its part, said it is gaining the scale it needs to be a powerhouse in the card industry. Chase is the third-largest card issuer, with $27 billion in card debt, and it will gain $4 billion in card receivables and 3.5 million card accounts.
"The biggest strength this (acquisition) brings is that it adds a lot of customers to Chase," said Donald L. Boudreau, Chase's vice chairman for nationwide consumer credit. Bank of New York also has a cobranded program with Toys 'R' Us Inc.
"Our strategy is that we are going to play an active role in the consolidation of the card industry," said Mr. Boudreau.
Chase will act as an agent bank, allowing Bank of New York to continue to offer credit cards. Chase, which has its card operation in Wilmington, Del., will also absorb about 70% of Bank of New York's 875 card employees who are based in Newark, Del.
Catherine I. Marsh, president of Bank of New York's card business, was unavailable for comment yesterday, as the employees in Newark were being informed of the impending sale.
In a separate transaction, Bank of New York plans to sell about $200 million in receivables that are delinquent or in bankruptcy, representing about 200,000 accounts.
Industry sources said Chase almost lost the Bank of New York deal a couple of months ago because its initial offer was too low. Bank of New York reportedly brought in Goldman Sachs & Co. to auction the portfolio this summer.
"Usually someone who is in a negotiated deal doesn't win in an auction," said Donald M. Berman, president of Cardholder Management Services, Plainview, N.Y. Industry sources say that Chase probably paid more for the portfolio than it had initially wanted.
Some speculated that Bank of New York was pressured to sew up a deal after AT&T announced plans to sell its card loans. The bank may have been more eager to strike a deal, particularly since its credit losses are higher than AT&T's, sources said.
