Card Venture Complicates Fleet-BankBoston Merger

The proposed merger of Fleet Financial Group and BankBoston Corp. would yield a market leader in credit cards - but one that would face obstacles in blending two portfolios.

Fleet is already among the top 10 credit-card issuers, with $16 billion of managed receivables. Adding the $1.2 billion BankBoston portfolio would reinforce its numerical standing.

But last year, BankBoston turned over its card holdings to a joint venture, Partners First. In exchange, the Boston bank got cash and a 19% equity stake in Partners First, which manages card portfolios for banks that want to outsource them.

The other partners in the venture are Harris Bankcorp, the Chicago subsidiary of Bank of Montreal, and First Annapolis Consulting.

Harris Bank put its card business into the company at the same time BankBoston did, and First Annapolis lent an executive to run the operation, which is in Linthicum, Md.

Now that Fleet has entered the picture, executives at the partner companies wonder whether BankBoston will retain its investment in Partners First, or try to shift those resources to Fleet's growing card empire.

John R. Soderlund, the former First Annapolis executive who is president and chief executive officer of Partners First, said he anticipates BankBoston will either try to buy the venture outright or seek to divest it.

"It would be awkward for (Fleet Boston Corp.) to be running their own business and to have an equity interest in Partners First," Mr. Soderlund said.

He said Harris Bank probably would not want to sell its stake. After Bank of Montreal's proposed merger with Royal Bank of Canada was denied by Canadian banking officials for antitrust reasons, Bank of Montreal began putting more emphasis on the U.S. card market, Mr. Soderlund said.

Mr. Soderlund said clauses were written into the original agreement that govern what would happen if BankBoston were acquired. He declined to describe them.

James M. Cosman, executive director of consumer credit at BankBoston, said it has not worked on its plans for Partners First. Fleet and Bank of Montreal declined to comment.

Separate from Partners First, BankBoston manages $400 million of receivables in its four-state "core" region, which could easily be folded in to Fleet's operation, analysts said.

Mr. Soderlund said he expects BankBoston to clarify its plans within two months. Whatever the decision, Partners First intends to stick with its business, he said.

If BankBoston opts out, "Bank of Montreal is very committed and we'll look for more partners," he said.

Partners First was formed in January 1998 to help small and midsize card issuers pool their resources and thus gain economies of scale seen as essential to compete in the card business.

The company said it aimed to be among the top 15 card issuers by 2000. This goal seems far away: Partners First currently has $2 billion of receivables and about one million active accounts, Mr. Soderlund said, placing it only in the top 30.

Last summer, Partners First bought $190 million of receivables from Comerica Bank-Midwest, a Toledo, Ohio, subsidiary of Detroit-based Comerica Inc. But other deals have been hard to come by.

Donald Berman, president of Cardholder Management Services of Plainview, N.Y., said Partners First's proposition is not "an easy sell."

"The business idea is a strong one," Mr. Berman said. "They bring size, scale, and skill that a lot of midsize issuers need." But "banks have to basically turn over the keys to their car and ask someone else to drive it. That's not an easy thing to do, even if it makes sense."

Fleet, which burst onto the national card-issuing scene two years ago when it bought Advanta Corp.'s consumer portfolio, has expressed interest in growing further through acquisition.

Joseph W. Saunders, chairman and CEO of Fleet Credit Card Services in Horsham, Pa., has repeatedly mentioned his company's nationwide ambitions.

Anita Boomstein, a credit card specialist at the New York law firm Hughes, Hubbard & Reed, said that if Mr. Saunders "withdraws from Partners First and adds that to his business, he has propelled himself to a slightly higher playing field."

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