Chemical Banking Co. is in discussions to buy Shell Oil Co.'s private-label credit card portfolio, a deal that would double the bank's cardholder account base.

Well-placed sources said that Chemical plans to acquire some four million accounts from Shell, converting its cardholders into full-blown credit card users by issuing a Visa card or MasterCard.

The Shell card is used for buying gas and other products at the company's service stations.

Boost to Sixth Place

The deal would double Chemical's portfolio of credit card accounts to eight million, boosting the bank three notches to make it the sixth-largest bank card issuer, as measured by number of accounts. Shell does not disclose its card receivables, making it difficult to assess the transaction's value by that measurement.

The cards would be issued by Chemical and carry Chemical and Shell logos.

Chemical officials would not comment specifically about the plan, but said the bank has talked to a range of oil companies, auto manufacturers, and airlines about ventures to cobrand their private label charge cards.

"We're looking at all kinds of cobranding," said Charles Walsh, executive vice president in charge of Chemical's retail card services group. But he added: "We have nothing to announce, nothing in the next quarter."

A spokesman for She declined to comment.

But the plan, dubbed Operation Cobra inside Chemical, is believed to be well-advanced. The deal is expected to close in October, sources said.

Potential Risks

Purchase of the Shell accounts would require the nation's third-largest bank company to add several hundred staffers to its card operations center on Long Island, according to sources. In addition to increasing overhead, the plan carries other risks.

Several institutions, including BankAmerica Corp., passed on buying the portfolio after investigating potential profitability. The Houston-based oil company has been hawking the card portfolio, which also includes about three million nonactive accounts that would not be in the Chemical package, for more than a year, according to people familiar with the Shell program.

Gas-card programs typically operate close to, or in, the red because charge volumes are low, use is sporadic, and balances tend not to revolve, experts said.

"In many cases those programs do not make money, but the oil companies offer them as a courtesy and to promote customer loyalty," said Robert B. McKinley, president of RAM Research Corp., Frederick, Md.

Large Market

Credit criteria for gas cards also tend to be lower than those used by issuers of bank cards, according to experts. It also may be difficult to get gas-card holders to use an affinity card for general purchases, since many probably already hold other credit cards, experts said.

But Shell has a large card constituency to offer Chemical, which became a significant market player after its merger with Manufacturers Hanover Corp. 18 months ago. In 1991, Shell recorded $3.79 billion of sales on its gas cards, larger than any other oil company program, according to the Nilson Report, an industry newsletter. Figures for 1992 are not yet available.

Though the verdict is out on how well Chemical would do with a cobranded card, there is precedent. Last month, Bank of Montreal acquired a portfolio of several hundred thousand cobranded Shell Mastercards from Royal Trust Company of Canada.

The bank plans to offer to the Shell customers a new cobranded card that earns mileage credit on several participating airlines.

If Chemical succeeds in converting private-label cards to general-purpose plastic, it could reap significant charge volume and income from interchange fees.

The bank had $5.78 billion in receivables last year, ranking it sixth among all bank issuers, according to the Nilson Report, and is eager to expand. Like most issuers, Chemical has been squeezed by nonbank companies entering the business. Receivables grew just 2% last year, and total accounts grew 1%, according to Nilson.

Consultants say Chemical must offer competitive rates, low fees and other perks to entice Shell's cardholders to actively use a cobranded card. The task is all the harder at a time when consumers are being inundated with low-rate, no-fee offers from other bank issuers and new competitors such as General Motors Co. and American Telephone & Telegraph.

Mickey Meece contributed to this article. How Chemical Would Rank After Deal Based on total credit-cardaccounts at yearend 1992. Figures in millions1. Citibank 19.72. AT&T Universal 10.33. Chase 9.64. Bank of America 8.95. First Chicago 8.96. Chemical(*) 8.0(*) Including Shell accounts. Chemical had4.0 million accounts at yearend 1992.Source: The Nilson Report

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