PNC Bank Corp.'s decision to sell its credit card business seems further confirmation of the squeeze that middle-tier card issuers are feeling.

The largest companies in the business continue to bulk up through portfolio acquisitions and general internal growth. Their economies of scale and marketing muscle nourish each other, increasing their efficiency and prowess.

Those that do not play for scale are increasingly content to put cards in the hands of their banking customers and leave it at that.

A bank can get caught in the middle like PNC, the 17th-largest card issuer, according to The Nilson Report.

"Increasingly, banks are realizing they have to go one of two ways," said Nancy A. Bush, an analyst for Ryan, Beck & Co. Either "they have to be mega-huge," or they can view the credit card "as an adjunct product to everything else they offer."

Last week, PNC said it was selling its $2.9 billion of card loans to MBNA Corp., the third largest in the business. PNC executives said it made more sense to take the 15% premium MBNA is paying and distribute the gains to shareholders than it did to hold on to what has been a lackluster business.

PNC's attitude was different in January 1996 when its partnership with the American Automobile Association, whose official name is now just AAA, put it in a position to market cards to 36 million members. PNC was optimistic that the affinity alliance could drive it into the top tier.

But the program failed to ignite as hoped, though it may have helped attract a favorable price from MBNA. The Delaware-based monoline expressed an eagerness to market to AAA members; MBNA will also keep PNC's name on some cards.

The AAA program fits MBNA "like a glove," said James Shanahan, a partner in the Newark, Del., office of Business Dynamics Consulting Inc. "No one is as good at generating accounts as MBNA."

MBNA says 80% of the growth in its managed loans is internally generated, rather than acquired. Even so, Mr. Shanahan said the company will need to seek out acquisitions to remain in the top echelon.

MBNA may need to acquire to keep pace with Citigroup's Citibank unit and Bank One Corp.'s First USA unit, the top two card issuers. First USA recently surpassed MBNA in outstandings, and Citibank retained its top ranking-now threatened by First USA-only by acquiring the AT&T Universal Card business this year.

Together, MBNA, First USA, and Citibank control more than 45% of U.S. credit card receivables.

As midsize and lower-tier issuers make their strategic choices, the biggest card specialists are picking up the pieces. First USA purchased portfolios in 1998 from Chevy Chase Bank ($5 billion) and Webster Bank of Waterbury, Conn. ($31 million). Providian Financial Corp. bought $2.2 billion from First Union Corp., which made a strategic decision to divest accounts outside its banking markets.

"It has become increasingly difficult for many issuers to compete, and selling is one alternative," said Jerry D. Craft, president of Inficorp, an Atlanta firm that manages credit card portfolios. PNC and Webster are former clients of his.

Mr. Craft said many banks' decisions are being guided by their sense that they lack the latest cards technology or the most experienced executives.

First USA and MBNA have mastered not only the affinity marketing technique, but also agent bank relationships. This year, MBNA has signed up Union Planters National Bank and National Commerce Bank, both of Memphis, to add to its 700 agent bank relationships.

Meanwhile, shedding credit cards will help PNC focus on some of its stronger business lines, like asset management and mutual funds, analysts said.

"It allows them to redeploy their resources-including their time and management attention-into areas that are much more appropriate for that company," said James M. Schutz, an analyst for ABN Amro Inc.

PNC's deal with MBNA marked the end of a gradual retreat from credit cards. This year a first-quarter spike in card chargeoffs was followed by the April resignation of James E. Gorman, president of the card operation. Bank executives said Mr. Gorman, who was never succeeded, disagreed with other managers about how to make the business grow.

In September, PNC sold $1 billion in receivables to Metris Cos., which specializes in subprime accounts.

Mr. Shanahan said PNC's move "just doesn't bode well for commercial banks when they can't muster the capability to compete successfully in these businesses. They need to be able to offer a wide range of consumer services to be successful over the long term."

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