AT&T Considers A Partnership For Credit Card

NEW YORK -- American Telephone and Telegraph Co. is considering taking on a partner as it seeks ways to free itself of the task of financing the receivables of its Universal credit card, said Alex Mandl, chief financial officer.

"We are not considering exiting the card business," Mr. Mandl said in an interview. "We will explore some options such as securitizing [receivables]." He added that joint ventures are a possibility but not as high on the company's list as securitization.

"As the business grows, there might be some reason not to carry the debts with the growth," Mr. Mandl said.

Greg Sawers, telecommunications analyst at Sandford C. Bernstein, said: "AT&T wants to focus on what they do best, which is communications. Parts of the card business help that and other parts don't, like carrying the receivables."

Called a Matter of Profits

"The clear point here is that if they really are seriously considering reducing their exposure to this business, it is for only one reason - returns are not adequate," said Paine Webber banking analyst Lawrence Cohn.

"They are not making enough money, because they are not charging an annual fee. Surprise. They are finally figuring it out," Mr. Cohn said.

"Credit cards are an enormously capital-intensive business, which chews up enormous amounts of a parent company's capacity to issue debt," Mr. Cohn added.

AT&T launched its Universal card about 18 to 24 months ago with much fanfare. Charter cardholders were told they would be charged no fees for life.

Cardholders also receive discounts on AT&T calls.

Profits Predicted for 1992

Mr. Mandl said the card, the United State's third largest, will lose money in 1991 but be profitable in 1992. He said the cards have a low default rate of "a nudge higher" than 1%.

He does not expect "an uptick" in that rate, despite the fact that the card is at the age when defaults begin to jump.

Mr. Mandl said that most of the Universal card's customers fall in a group with less credit risk. They also are less profitable because they tend to pay their bills on time, he added.

He said that securitizing the receivables, or finding another company to take on the bank-like task of financing them, does not signal that AT&T will be soliciting riskier, more profitable customers.

AT&T Not Alone in Strategy

"We do not plan to change our portfolio's quality," he said.

AT&T is not alone in considering partners for its card. Ameritech Corp. a Chicago-based telephone company, recently did just that.

On October 1, Ameritech announced it was partnering its card with Household International.

"We are in an alliance. We manage the calling card aspect and Household manages the credit card aspect," said Ameritech spokesman Steve Ford.

"Household is responsible for issuing the card on our behalf, but it is an Ameritech product," he said.

The affinity structure would be a big departure from the way AT&T now runs its popular Universal card, which the company does out of Synovus Financial Corp., Columbus, Ga.

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