The credit card marketer CompuCredit Corp., which has agreed to buy the subprime card issuer CardWorks Inc., said that the deal is all about scale in subprime - and that it does not plan to use CardWorks' bank charter for card issuing.
David G. Hanna, CompuCredit's chairman and chief executive, said he plans "to continue our relationship" with Columbus Bank and Trust Co., the Synovus Financial Corp. unit that issues most of its cards.
"They've been a great partner," he said.
CardWorks would continue to issue through its own bank subsidiary, Mr. Hanna said. CardWorks owns Merrick Bank, a Utah industrial bank it established in 1997.
"We're not in a hurry to combine or change things," Mr. Hanna said. "For the foreseeable future, it will be more of the same. CardWorks will continue to do what they've done, and we will continue to do what we've done."
CompuCredit, of Atlanta, announced Thursday that it had agreed to pay $270 million in cash for CardWorks, of Woodbury, N.Y. CompuCredit has $2.2 billion of receivables and CardWorks has $700 million. The deal is to close late in the fourth quarter or early next year.
Daniel B. O'Sullivan, an equity analyst at Utendahl Capital Partners LP, pointed out that CompuCredit's relationship with the Synovus unit will come up for renewal in the spring.
Being able to issue cards through its own bank would be a valuable insurance policy for CompuCredit, he said. Its inability to issue its own cards "was weighing on people's minds," he said.
For a company whose main business is offering cards, "ultimately you would like to have your own credit card-issuing bank," Mr. Mr. O'Sullivan said. "At the end of the day, that's what this [deal] is about."
"This is a very big step for them."
Mr. O'Sullivan has an "overweight" rating on CompuCredit shares.
Jay Putnam, a spokesman for CompuCredit, said that Columbus Bank and Trust, of Columbus, Ga., has been its issuing partner since CompuCredit was founded in 1996. The relationship is renewed every year, he said
Greg Hudgison, a spokesman for Synovus, said that any changes in the relationship with CompuCredit "would come from them."
"We don't know if … [the CardWorks deal] will have any impact on us," he said.
The Office of the Comptroller of the Currency blocked CompuCredit's previous attempt to buy a bank. In 2003 it rejected its application to buy Axsys National Bank from Federated Department Stores Inc.
At the time the OCC wanted to avoid a repeat of the collapse of NextCard Inc., an Internet card company that did own a bank; NextCard originally hoped to attract prime customers but wound up with a subprime portfolio and was forced out of business by the bad debt.
Mr. Hanna said that there are no immediate plans to combine CardWorks and CompuCredit. Donald M. Berman, the chairman and chief executive of CardWorks, plans to remain, he said.
"We think there is going to be enough growth in both entities to have staff and facilities in both places," Mr. Hanna said.
CardWorks services its cards through its Cardholder Management Services unit.
CompuCredit and CardWorks have worked together in the past. They teamed up in 2002 to buy a $2.4 billion portfolio of higher-risk credit card loans from Providian Financial Corp.
Mr. Hanna said the experience of sharing the management of those receivables simplified the due-diligence process of this deal.
He expressed little interest in selling CompuCredit to a banking company, as some other card companies have been doing. Metris Cos. Inc. of Minnetonka, Minn., agreed last month to sell itself to HSBC Holdings PLC, and Bank of America Corp. is buying MBNA Corp. Providian's Financial Corp.'s agreement to sell itself to Washington Mutual Inc. is expected to close Oct. 1.
"There are always going to be numerous niches for somebody who is smaller and can move quickly," Mr. Hanna said. In fact, he said, he hopes to continue to buy portfolios from others, as both CompuCredit and CardWorks have done.
"Our increased heft here will enable us to look at even more opportunities," Mr. Hanna said.
