Mellon Bank Corp.'s plan to sell its consumer credit card portfolio raises the question: Is it worthwhile for midsize card issuers to compete against the giants?

Mellon decided the answer was no. The Pittsburgh-based bank's $1.9 billion card business-ranking 24th in the industry-was increasingly dwarfed by those of larger issuers, and the company thought it best to sell the division and pump the proceeds into stronger units.

Martin G. McGuinn, chairman and chief executive officer of Mellon, said his cards business "has strong product and customer positions that offer greater potential in the hands of organizations better positioned to leverage their strengths."

The short list of potential buyers probably would include the First USA division of Bank One Corp., MBNA Corp., and Chase Manhattan Corp., said Donald M. Berman, president of Cardholder Management Services, Plainview, N.Y.

Analysts estimated the portfolio could fetch $250 million.

Many of Mellon's accounts-25% by some estimates-are part of an unsuccessful program called the Cornerstone Card, introduced in 1994. The program gives cardholders partial rebates on interest charges for 20 years, and a total rebate after 20 years.

The product, which is no longer actively marketed, cost Mellon $106 million in unpaid debt from customers with high credit risk, the bank has said.

Mellon also has several affinity card relationships, including one with the American Dental Association.

Mellon intends to pursue an agent bank relationship with the company that buys its receivables, so credit cards are still issued under the Mellon name, said spokesman Ron Gruendl.

Mellon does not intend to sell its purchasing card portfolio or smart card technology, which is being used in several pilots on military bases, Mr. Gruendl said. Mellon is a designated corporate card issuer for the federal government.

Mellon's decision, announced last week, came just a year after the company hired a new credit card manager, John L. Klink Jr., and retained an outside card marketing and management firm, Inficorp of Atlanta. Mr. Klink had presided over Signet Banking Corp.'s card program before it was bought by First Union Corp. in 1997.

Last year, in announcing the alliance with Inficorp, Mr. Klink said credit cards were "a key service" for Mellon and "important to our overall banking strategy."

Robert K. Hammer, president of R.K. Hammer Investment Bankers, Thousand Oaks, Calif., said Mellon probably agonized over its decision to leave the cards business.

But Mellon "simply did not have enough critical mass in the business," said First Union Capital Markets analyst, Ed Narjarian.

Mellon's portfolio is overshadowed by the $64 billion in receivables held by both Citigroup and First USA; the $46 billion held by MBNA, and the $31 billion of Chase Manhattan.

The formidable competition prompted several other mid-tier issuers to leave the business last year, including PNC Bank Corp., which sold its $2.9 billion portfolio to MBNA, and Chevy Chase Bank, which sold $4.9 billion receivables to First USA.

"We used to say that less than $1 billion (of receivables) was a small issuer," Mr. Hammer said. "Today, less than $10 billion would be considered small."

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