PORTLAND, Ore.-Credit unions looking for "easy money" by selling off their credit card portfolios are finding it's not so easy anymore.
Where once credit unions would have multiple buyers wooing them with 20% premiums, today such overtures are few and far between.
In its recent analysis of credit card portfolio data, AssetExchange, a card portfolio advisory and brokerage firm, found portfolio sales activity has diminished significantly: For the roughly 2,100 credit unions with credit card portfolios of $1 million and larger, only three card portfolios were sold in the second quarter of 2009 with approximately $4.5 million in combined outstandings, down from about $20 million in portfolio sales in the 2nd quarter of 2008 and $190 million in the 1st quarter of 2009.
"Ironically, we've seen an increase in credit unions researching the possibility of selling their credit card portfolios, but where several years ago selling the portfolio was a strategic decision, what's driving the decision now are credit unions seeking to boost their capital," AssetExchange CEO Willie Koo told Credit Union Journal. "The problem is, many buyers are being much for cautious. They're looking more closely at the credit union, and if they think the credit unions is financially troubled and may be merged out, they aren't interested. The buyers want that strong credit union brand to continue after the sale, and if they're not sure it's still going to be there, they aren't buying."
But there are other reasons portfolio sales may be slowing down, Koo added. For one thing, credit cards are still the highest yielding portfolio for most credit unions, and for another, there has been some disappointment among credit unions that sold their portfolios earlier that may be giving other credit unions pause. "We did a survey about a year and a half ago of credit unions that had sold their portfolios, and we found that many of them were not happy with the customer service their members were getting [from the partner that bought the card portfolio]."
Even so, Koo said there may be a spike in portfolio sales in the third or fourth quarter, but it's too soon to make any strong predictions on that front.
Outstanding balances grew 6.3% between June 2008 and June 2009 to $32 billion, slightly faster than the first quarter 2009 rate of 5.9%. "What's interesting about this is that revolving credit overall was down 5%, while credit unions saw nearly 6% growth during the same time," Koo observed, noting that it's possible consumers are beginning to differentiate CU cards from other issuers - but it's also being driven by banks rejecting more applicants and consumers getting fewer pre-approved promotions.
Other findings of the 2,100 CUs with card portfolios of $1 million or larger include:
* Card accounts grew 2.2% over the same period to 12.3 million. The percentage of portfolios that grew more than the rate of inflation during the previous 12 months increased to 70% in the second quarter of 2009 from 60% in the second quarter of 2008, as inflation was negative.
* Cards as a percentage of total assets declined to 4.57% in the second quarter of 2009, down from 4.80% in the second quarter of 2009. This metric is up slightly compared to the first quarter of 2009 when the ratio was 4.52%.
* Credit card penetration remained approximately flat in the second quarter of 2009 at 18%.
