The recent spate of credit card portfolio sales is helping boost more than just the buyers and sellers — the behind-the-scenes players are pretty happy, too.
Third-party processors like Total System Services Inc. and First Data Corp., which help run credit card systems for banks, are anticipating new business from the renewed activity in the credit card M&A market.
"We see this as a market opportunity," says Andrew Mathieson, senior director of TSYS program solutions.
Deal-making mostly dried up during the financial crisis — with the exception of the banks that
But now credit card portfolios are getting swapped around again, as big banks like Bank of America Corp. and HSBC are being forced to shed assets. Some of those deals are even contributing to deconsolidation, including B of A's decision to sell back portfolios that it once ran
"I think it's a tremendous opportunity for processors," says Rick Fischer, a partner at Morrison & Foerster LLP.
Regional banks are working to "broaden their relationship with a customer" by offering additional services, including credit cards, he says. For processors, the "key" is that regional banks "really can't do that processing themselves. They need the assistance of others."
Regions will be using a third-party card processor, according to bank spokeswoman Evelyn Mitchell. She would not go into detail because an agreement has not been finalized.
The Birmingham, Ala., bank in June finalized its deal to buy back its $1 billion credit card portfolio from Bank of America. Mitchell says the repurchase allows Regions to diversify its consumer lending portfolio and offer more products to customers.
Mathieson says TSYS expects more regional banks to take back control of their credit card operations. Of the roughly 1200 mid-sized banks with $500 million to $10 billion in assets, approximately 800 do not currently issue their own credit cards, according to TSYS.
He would not discuss the impact of any specific credit card deals on TSYS, but says the company broadly has been preparing for more industry deconsolidation. It launched his product solutions division in 2009 to "provide support to clients evaluating what are the financial returns, what is the business case, what are the risks" of issuing their own credit cards.
Since TSYS started the division, "the market momentum and rationale have become even more clear…. What we expected is in fact happening," says Mathieson.
Of course, not every deal is large enough to move the needle much for the third-party processors. But some of the recent deals have been huge.
Capital One Financial Corp., which is buying a $30 billion credit card portfolio from HSBC, recently renewed its contract with TSYS, according to Greg Smith, a managing director with Sterne, Agee & Leach.
That "is highly suggestive of the fact" that the HSBC portfolio will also be processed by TSYS, Smith says, adding that the processor's 2013 earnings could now "look pretty interesting."
In a report earlier this month, Smith estimated that by taking over the HSBC portfolio, TSYS could boost its earnings by 10 cents to 14 cents per share starting in late 2012 or early 2013. Sterne Agee & Leach does not yet have an official 2013 earnings projection for TSYS, but Smith roughly estimated that the company would earn about $1.37 per share for the year, not including the boost from HSBC. TSYS declined to comment on Smith's estimates.
First Data Corp., a privately held card processor, declined an interview request.
