Banc One Corp.'s First USA credit card subsidiary said Thursday that it has bought the $4.9 billion card portfolio of Chevy Chase Bank for an undisclosed price.
Chevy Chase, which failed to fulfill earlier aspirations of joining the credit card elite, decided it could not compete with the giants, said Stephen R. Halpin Jr., its executive vice president and chief financial officer.
That played into the hands of First USA, which has a "strategic plan to capitalize on consolidation in the credit card industry," said Richard W. Vague, chairman and chief executive officer, and Randy L. Christofferson, president, in a joint statement.
According to First USA, the Chevy Chase acquisition would raise its managed card loans to $46.5 billion-$500 million shy of the midyear figure reported by the No. 2 credit card bank, MBNA Corp.
"To be successful now, you increasingly need more than our $5 billion portfolio," said Mr. Halpin of Chevy Chase, a $6 billion-asset thrift institution based in McLean, Va.
First USA, based in Wilmington, Del., said it will keep Chevy Chase's credit card facility in Frederick, Md., and hire its 1,300 workers. First USA also entered into an agent agreement to continue issuing cards and statements under the Chevy Chase name.
"Many issuers are finding it difficult to consistently maintain the level of financial commitment to marketing and technology that is required for long-term success," Mr. Vague and Mr. Christofferson said. "The structure of this transaction enables Chevy Chase Bank to sell its credit card operation yet maintain a strong credit card marketing presence among its customers and in its local markets."
In the process, First USA will add to its lengthy list of affinity programs. Chevy Chase issued a Rolling Stones MasterCard and Visa card. Other marketing partners include Giant Foodstores, the National Association of Female Executives, and Black Entertainment Television.
First USA, a monoline card issuer that traces its roots to the defunct MBanks of Texas, has been hungry for growth since Banc One acquired it for $7.9 billion in June 1997.
First USA's last acquisition, in April, was of the $31 million Visa portfolio of Webster Bank, Waterbury, Conn. A First USA spokesman said more deals may be forthcoming.
"One focus as part of this year's strategy will be in portfolio acquisitions," said the spokesman. "There are opportunities in the market at this time."
In their statement, Mr. Vague and Mr. Christofferson said that they view direct marketing as the primary source of growth but that they will be opportunistic when deals are available.
The Chevy Chase transaction "puts them back on the radar screen, creatively structuring a deal that might not have happened otherwise," said Robert K. Hammer, president of R.K. Hammer Investment Bankers of Thousand Oaks, Calif.
Portfolio purchase prices are expressed as a premium on receivables. Mr. Hammer said $26 billion has changed hands in the card industry this year at an average premium of 13.4%.
First USA may have paid Chevy Chase a lower percentage, he said, because of its agreement to take the thrift's facility and employees-provisions that may have helped cement the deal.
"They are nipping at the heels of MBNA right now, in terms of size," Mr. Hammer added.