AT&T Corp., which stormed into the credit card industry seven years ago with an aggressive new style of marketing, abruptly announced plans on Monday to withdraw from the field.
The telecommunications giant is putting its $14.2 billion card portfolio on the block as part of a broad plan to refocus on core businesses. The portfolio, the seventh-largest in the industry, would likely command a premium of about 15%, or $2 billion, observers said.
A sale would represent the swan song to a program once hailed as one of the biggest success stories in the industry. When the AT&T Universal Card was introduced in 1990, it attracted a million customers in 78 days, then a record.
AT&T startled the industry early on with its "no fee for life" offer on all cards. Until then, annual fees had been a staple of the card industry. AT&T also was quick to capitalize on its brand awareness among consumers and its access to homes across the country.
Observers said the list is short for capable buyers of the massive portfolio. Among those mentioned: Chase Manhattan Corp., MBNA Corp., and American Express Co.
"This will clearly move market share among the top 10 issuers, if one of them acquires it," said Anita Boomstein, a lawyer at Hughes, Hubbard & Reed in New York who worked on the Universal Card's launch. "It really will change the dynamics of the top 10."
Monday's announcement came amid a leadership change at AT&T, as C. Michael Armstrong was named to succeed Robert E. Allen as chairman and chief executive officer. The company said that competition in telecommunications was forcing it to make a clean sweep of the card business and other tangential businesses.
The move surprised the card industry because AT&T card unit had been making great strides under a new leader, Richard Srednicki, formerly of Citicorp.
At the end of September, the unit's card receivables were up more than 8% from a year earlier, following two years of declines. Meanwhile, chargeoffs have dropped to 5.34%, from 6.51%.
"Richard Srednicki has done a great job of getting the ship back on course and it is poised to be profitable," said Donald M. Berman, president of Cardholder Management Services, Plainview, N.Y.
In January, when Mr. Srednicki joined AT&T after running Citibank's card unit in Germany, his mandate was to lower the chargeoff rate and grow receivables. He maintains that he would not have joined the company if he had been told that his efforts would be used to make the card unit attractive for an eventual sale.
AT&T said already has held discussions with possible buyers of the card unit and hopes to announce a deal by mid-1998.
The plan is for the card unit and its parent to continue in their cobranding relationship. The AT&T credit card's main feature are points customers may use to reduce their telephone calling card bills. The AT&T card was also one of the first card programs to introduce a program with no annual fee. Mr. Srednicki, said those feature will likely remain intact.
About 80% of the card unit's customers are also customers of AT&T Corp. "We want to improve that number," Mr. Srednicki said in an interview Monday. If the management team remains in place, as Mr. Srednicki hopes, "we plan to convert AT&T's local (telephone) customers to cardholders," he said.