The market for credit card portfolios continued to show signs of tightness last year, with premiums staying high and fewer sizable transactions taking place, according to data compiled by a firm that brokers such deals.
The results were in line with longstanding trends, according to several observers, who expect more of the same in the year ahead.
The dollar value of card assets sold last year more than doubled from 2005, to $90.3 billion, according to R.K. Hammer Investment Bankers of Thousand Oaks, Calif. That figure includes Bank of America Corp.'s acquisition of MBNA Corp., which closed Jan. 1, 2006, and included roughly $80 billion of card receivables.
R.K. Hammer said it typically does not include full company transactions in its tallies - the 2005 total does not include Washington Mutual Inc.'s purchase of Providian Financial Corp. - but felt compelled to do so in the case of the MBNA purchase because of its significance in the industry.
Robert Hammer, R.K. Hammer's chief executive officer, also noted that large individual transactions often skew measurements of volume heavily.
Still, transaction activity was remarkably quiet for the remaining 364 days of the year. Only five deals involving more than $500 million of assets were closed last year, compared to 12 in 2005 and 16 in 2004, according to R.K. Hammer's data, which is based on the company's own practice and additional market surveillance.
Last year the advisory firm tracked 83 transactions - excluding those involving credit union portfolios - versus 70 in 2005. Among transactions for which pricing data was available, premiums ranged from 8.3% to 32.9% last year, and the average premium was 19.8%. In 2005 premiums ranged from 6% to 31%, and the average premium was 20.4%.
The fact that almost 95% of last year's sales involved "ongoing agent programs," as opposed to liquidations, has helped sustain the steep pricing, R.K. Hammer said.
According to Mr. Hammer, the data paints a picture of a seller's market, with large card issuers avid for additional girth but with consolidation already having wrung out the vast majority of issuers.
"There are fewer and fewer sellers out there," he said. At the large card companies, "you have world-class acquisition teams … hungry and ready for the next deal."
Credit unions have been frequent sellers, mainly because, unlike banks, they continue to participate in the credit card business in large numbers.
"You go back to the early 1990s there were maybe 2,500 bank issuers," said Tim Kolk, a managing partner at Brookwood Capital LLC, a consulting firm. "Now there's maybe 400." Few banks are entering the business, so the small and midsize portfolios that have been lost to consolidation are not being replenished, he said.
But about 2,100 credit unions have card portfolios of at least $1 million, and about 3% of them are deciding to unload the business every year, he said.
"We see in the credit union space a much greater awareness that they have to pay closer attention to their card programs than five years ago," because the business has an array of pitfalls, including dissatisfied customers and credit risk, Mr. Kolk said.
Sales by credit unions will stay robust in the foreseeable future, he said. It will be "fairly stable for the coming years - between 60 and 70 portfolios from the credit union space."
Mr. Hammer, looking to volumes from 2002 and 2005 as a guide, said he expects non-credit-union deal volume to return to a "normalized" rate of about $40 billion.
