AmSouth Bancorp on Monday agreed to sell its $550 million credit card portfolio to MBNA Corp., saying it lacks the size to compete in the business without "substantial" new investment.
The Birmingham, Ala., company did not reveal the price but said it expects a pretax gain of $170 million from the sale, which is slated to close by yearend. AmSouth said it would use the proceeds to offset the cost of repaying high-cost debt including about $1.4 billion of Federal Home Loan Bank loans.
The $50 billion-asset banking company said it expects the sale and the refinancing to add to earnings next year.
The deal is the second this year between one of Birmingham's big regional banks and MBNA, of Wilmington, Del. SouthTrust Corp. sold its $325 million card portfolio to MBNA in June, shortly after announcing it would sell itself to Wachovia Corp. of Charlotte.
Though its credit card business "is strong, it is noncore and lacks meaningful scale," C. Dowd Ritter, AmSouth's chairman, chief executive, and president, said in a press release Monday. "Substantial additional resources would be required to continue to effectively participate in this market. We believe we can better deploy our capital, while at the same time continuing to benefit from an additional revenue stream as a result of the agent-bank agreement."
MBNA would own AmSouth's credit card receivables and get exclusive rights to issue cards to AmSouth customers.
AmSouth, which has 390,000 credit card accounts, would continue to receive a share of the proceeds from the business.
"There's terrific potential for growing the portfolio, which we will do by offering AmSouth customers a wide range of credit card products and by backing those products with consistently top-quality service," John R. Cochran, the chairman and chief executive of MBNA America Bank, said in a press release.
Jason Goldberg, a Lehman Brothers analyst, said Monday that AmSouth's decision to get out of cards is not a surprise, given the relatively small size of its portfolio. "It's a scale business, and a lot of those larger players have gotten even larger."
Over the past year a number of big card issuers have combined their businesses. J.P. Morgan Chase & Co. bought Bank One Corp., Bank of America Corp. acquired FleetBoston Financial Corp., and Citigroup Inc. bought the card business of Sears, Roebuck and Co.
"You have the big Goliaths that are beating up the Davids," Mr. Goldberg said.
MBNA has cut similar deals with a long list of companies in recent years; it now markets cards through 300 financial institutions.
AmSouth shares rose 0.7% and MBNA's 0.2%.
