Providian Is Latest to Exit U.K. Cards

Providian Financial Corp.’s deal to sell its U.K. credit card portfolio to Barclays Bank PLC looks like further evidence that the ability to run a credit card business in the United Kingdom has become an attribute separating stronger U.S. card issuers from weaker ones.

People’s Bank in Connecticut sold its $436 million of U.K. receivables to the Citibank International PLC subsidiary of Citigroup Inc. in April 2001, saying the portfolio had grown too large for a bank like People’s to manage. In 2000, at the height of Bank One Corp.’s financial problems, it sold its U.K. cards business to Halifax Group PLC.

Meanwhile, the two biggest U.S. card issuers — Citibank and MBNA Corp. — continue to grow in the United Kingdom. MBNA bought Abbey National’s credit card business last April.

Other U.S. issuers moved into the British market a few years ago, trying to capitalize on the high interest rates and bland product set that typified U.K. banks’ card offerings. U.S.-based issuers operating in the United Kingdom include Capital One Financial Corp. and Morgan Stanley & Co.’s Discover Financial Services unit, which issues MasterCards in the United Kingdom.

San Francisco-based Providian, which sold $8.2 billion of its choicest accounts to J.P. Morgan Chase & Co. in January, clearly needed to raise cash. It had announced in November that it would seek to ease its financial troubles by selling its foreign portfolios, despite having previously stated that the U.K. business represented a first inroad into the European credit card market for Providian.

Under the deal announced Wednesday, the Barclaycard division of London-based Barclays Bank will pay a premium “in the low double digits” for Providian’s 500,000 accounts in the United Kingdom, which include $570 million of receivables. Barclays — which is the biggest credit card issuer in the United Kingdom, with 8.2 million accounts — will also get Providian’s two U.K. offices, in London and Crawley, and will retain Providian’s 630 employees. The deal is expected to close in April.

Barclays says it will retain the Providian name until it makes a final decision on integrating the accounts into Barclaycard’s business. “The acquisition of Providian will extend our customer base and provide us with additional expertise in key areas including information-based customer management,” Barclaycard chief executive officer Gary Hoffman said in a press statement.

Providian president and CEO Joseph W. Saunders called the deal a step in the right direction.

“In November 2001, we announced we would seek a sale of our international businesses consistent with our five-point action plan to refocus Providian’s operations and to rebuild investor confidence and shareholder value,” he said in a statement. “It is gratifying that Barclays has recognized the value of our U.K. business.”

Providian has also just closed its U.K. deposit business. Deposits were returned to customers, along with interest payments up to Feb. 18 and an extra payment of 10 days’ interest. Providian had said in November that it had agreed with U.K. banking authorities to stop accepting deposits in the U.K..

Providian had offered fixed-rate bonds — which are known in the United States as certificates of deposit — at what a Providian spokeswoman called “market-leading” interest rates.

In November, Providian had said that its U.K. and Argentina deposit businesses together had $188 million of deposits. Providian’s U.K. business was much larger than its Argentina business, but the spokeswoman would not give a breakdown.

Though Providian put the premium for its portfolio in the low double digits, a Reuters report quoted a source close to the deal as saying the price was $649 million to $663.5 million, or a premium of 15% to 17% on the receivables — which would continue Providian’s run of obtaining less than market rates when it sells accounts. A Barclays spokesman characterized the portfolio as “prime and near-prime, with no subprime” accounts.

Providian’s executives have said they will take whatever steps are needed to cut costs and raise capital, and have said that other portions of its business may go on the block. The portfolio Providian sold to Morgan Chase had a premium in the mid-single digits, the companies said.

Providian has had about $3 billion of its subprime portfolio on the market since late last year, apparently with no takers. It is trying to sell its Argentina business, which had about $15 million of receivables as of November, but it may have trouble there because of Argentina’s economic problems.