PNC Bank Corp.'s credit card chief has resigned amid concerns that his portfolio was underperforming and produced too many losses in the first quarter.
James E. Gorman, president of PNC National Bank, the credit card operation in Wilmington, Del., left because of "strategic differences," said PNC spokesman Jonathan Williams.
"Jim was focused on building a national brand, whereas we are focused on the strategic relationships we have," said Frederick J. Gronbacher, chief executive of PNC's national consumer banking business. Mr. Gronbacher has taken over the card unit until PNC finds a permanent successor.
Mr. Gorman joined PNC in May 1996, shortly after the bank won a coveted contract to market financial services to AAA's 40 million members. The deal was announced with fanfare, and PNC was hailed as a cutting-edge issuer whose partnership with the premier auto club gave it access to an enormous customer base.
But PNC's portfolio did not snowball as predicted. According to the Nilson Report, the bank's roughly $4 billion of receivables rank it 20th. The AAA portion of its portfolio accounts for about half of its loans.
"Card balances have been flat for the past three quarters," said Sally Pope Davis, an analyst at Goldman, Sachs & Co. The slow growth of the AAA portfolio has been "disappointing in terms of the guidance they had given the Street."
Moreover, chargeoffs in the first quarter spiked to 7.4%, from 5.15% in the fourth quarter, according to Anthony Davis, an analyst at SBC Warburg Dillon Reed.
PNC was hit hard by bankruptcy filings in the first quarter, and in January it ended its collections contract with First Data Resources. "Our long-term credit card plan requires that we have collections in-house," Mr. Gronbacher said. The transition, however, "involved a fair amount of cleanup."
Analysts had expected the AAA portfolio to generate enough revenues to offset its high marketing costs. Two years into the program, that has not happened, Mr. Davis said. He predicted it would be another six months before it did.
Mr. Gronbacher said PNC is not worried about the profitability of its AAA portfolio. He said the AAA marketing programs are "going well."
Most of the trouble with chargeoffs is coming from new accounts, not the AAA portfolio, Mr. Davis said. In the past 18 months, PNC has added about $500 million of receivables that came from national mailings.
"I've been concerned about the long-term profitability of their credit card strategy," said David Hilder, an analyst at Morgan Stanley Dean Witter.
PNC executives recently told Mr. Hilder they planned to suspend national credit card marketing efforts. "They are less interested in a national credit card strategy outside the AAA relationships," Mr. Hilder said.
PNC also markets the Mall VIP Visa card, an alliance with seven companies that own mall franchises.
As to whether the AAA portfolio has fulfilled PNC's expectations, Mr. Williams, the PNC spokesman, said that trends in the industry like teaser rates and transferring credit card debt into a home equity loan "have had an adverse impact on the AAA portfolio."
Analysts say PNC has achieved some of its goals for the partnership, including cross-selling auto loans, home equity loans, and deposit products to AAA customers. Mr. Williams said cross-selling efforts have run "ahead of our expectations and plan."
PNC has generated more than $500 million of assets other than credit card loans from the AAA relationship.
"This is not just a credit card initiative," Mr. Gronbacher said. "The real strategy is building a national consumer bank with a full set of consumer banking products."
To that end, PNC got regulatory approval last year to open offices in AAA locations nationwide. The idea was to enhance its ability to sell credit cards, mortgages, personal loans, auto leases, deposits, and investment products directly to AAA members.
Before its partnership with PNC, the auto club had alliances with a number of banking companies-including Banc One Corp. and Mellon Bank Corp.- that marketed AAA-branded credit cards. Those contracts involved only credit cards and were not exclusive. Banc One, Mellon, and others eventually sold their AAA portfolios to PNC.