Platinum cards are delivering on their promise as the most profitable type of bank cards, with gold cards and cobranded products close behind, according to a study by investment banker Robert K. Hammer.

Mr. Hammer, who specializes in card portfolio sales, found that industry profitability declined in 1997 for the third straight year, but concluded that "there is profit to be made-and improved upon-in virtually every credit card product category."

He said cards are "still a good, profitable product."

Last year's industrywide pretax return on assets was 2.6%, down from 3.3% in 1996.

Annualized numbers derived from this year's first-quarter results show platinum cards are faring better than average, at 3.0%.

Platinum plus cards-offering larger credit lines and richer benefits than ordinary platinum-are returning 2.8%, cobranded and gold cards 2.7%.

Standard cards, including small-business cards, came in just under last year's industry average, at 2.5%.

Two nonrevolving products, purchasing cards and travel and entertainment cards, were at 1.8% and 1.2%, respectively.

Mr. Hammer, head of R.K. Hammer Investment Bankers, Thousand Oaks, Calif., said a card-issuing banker should logically ask, "Why aren't we doing more small-business and commercial accounts? Those can and do revolve at nearly the same rates as consumer accounts, and earn at about the same rates."

Some banks are delving more deeply into this category.

Visa U.S.A. has placed an "increasing focus on the small-business market," said Bruno Perreault, senior vice president of commercial card products. A number of banks have come forth with the new Visa check card for small businesses; Chase Manhattan Corp. launched the MasterCard-branded Chase Business Banking Card this year.

Mr. Hammer said his results also show the continued strength of cobranding, despite "a movement afoot that says you can't make money in it any more-that partners want too much."

Jerry D. Craft, president and chief executive officer of Inficorp Holdings Inc. of Atlanta, said it made sense that cobranded accounts are prospering. "The more profit per account-that's naturally going to attract the marketing dollars," said Mr. Craft, whose company manages credit card portfolios.

He said platinum and some cobranded cards tend to attract "big spenders," who are favored customers.

At the same time, Mr. Hammer noted a "continued softening" of industry profits "due to competition, technology, and all the factors surrounding pressure on earnings."

The aggregate return on assets has never matched the 5.4% he calculated in his survey's first year, 1983.

Some industry experts said Mr. Hammer may be putting too optimistic a spin on the findings. Where Mr. Hammer sees credit card assets, 4.5% of the banking industry total, producing 9% of total profits, others say the glass is half empty.

"The bigger story is that credit cards as a category are diminishing in profitability," said James Shanahan, a partner in the Newark, Del., office of Business Dynamics Consulting Inc.

"There are people who are doing very well, but the trend line is down."

Mr. Shanahan said the success of monoline issuers indicates that credit cards are "a good business," but he added, "I don't know if it's going to stay that way."

In a report last week, Salomon Smith Barney found growth slower and chargeoffs higher in the first quarter.

Managed receivables averaged $347.8 billion for the quarter, the company said, 3.7% more than a year earlier but 5.1% less than in the fourth quarter, computed on an annualized basis. Card loans usually dip in the first quarter, after holiday spending in the fourth.

Nonbank card growth-which Salomon Smith Barney defines as monoline companies plus the American Express and Dean Witter Discover port-folios- was stronger than the bank card composite.

Salomon Smith Barney also found the net chargeoff ratio increased to 5.85%, from 5.55% a year earlier and 5.69% in the fourth quarter.

Henry C. Dixon, an analyst who helped prepare the report, said there is "still money to be made" in credit cards.

"There are still companies putting a fair amount of capital behind the business, and I think that says a lot about the business," he said. u

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