2000 was a banner year for credit card portfolio transactions, with a record number of portfolios bought and sold and higher-than-average premiums paid, according to an investment banking firm that tracks this activity.

The 36 blocks of credit card receivables that passed hands last year translated into 23.4 million Americans having one of their cards sold to a different company. Buyers paid an average weighted premium of 18.5%, the highest average in five years. In all, $19.7 billion of card receivables were sold last year — up only slightly from the $19.4 billion a year before, when there were only 21 deals — and buyers paid an average of $169 for each account.

The figures are the work of Robert K. Hammer, chairman and chief executive officer of R.K. Hammer Investment Bankers, a Thousand Oaks, Calif., firm that brokers credit card portfolio sales. “It is the biggest number of portfolio sales I have seen in my 25-year career,” Mr. Hammer said. “What is interesting is the average weighted price is up considerably, to 18.5%, yet when there are more transactions, prices tend to be stingier.”

The credit quality of the portfolios sold last year was high, and that boosted the prices the loans commanded, he said.

Two major deals made up more than two-thirds of the dollar value for the year. Citigroup Inc.’s purchase of Associates First Capital Corp., which has a $7.38 billion card portfolio, led the list, followed by MBNA Corp.’s purchase of First Union Corp.’s $5.6 billion portfolio.

Mr. Hammer predicts the fevered pace of deals will continue through the first quarter. Since premiums are so high, banks that are sitting on the fence may well decide that the time is right to sell off some or all of their credit card loans, he said.

Like so many areas of the financial services industry, the credit card business has been consolidating rapidly over the last few years, as smaller and midsize issuers decided they lacked the economy of scale needed to make their card operations as profitable as they wanted.

In the mid-1990s just about every regional bank ran its own credit card division, but today the business is dominated by a handful of large banks, nonbanks, and monolines. Many prominent banks have opted to get out of the business, usually by selling their receivables to an agent bank that will manage operations and offer credit cards under the seller’s brand names to the seller’s deposit account customers.

“There are lots of factors affecting banks and why they sell,” Mr. Hammer said. He called good-quality portfolios “very liquid assets” that can usually be sold within 60 days. This liquidity makes the portfolios attractive to banks that may need to cover losses in other departments or raise capital for new investments, he said.

Some banks have found that after weathering the Y2K date-change, they need to upgrade their information systems, and they are selling all or part of their card portfolios to raise capital, he said.

Another trend Mr. Hammer noted is partial portfolio sales, which banks tend to undertake as a strategic move by selling only a portion of the portfolio that may consist of out-of-area accounts or other non-key customers.

“Fully a third of all the sales in 2000 were partial,” he said. “They sold some logical segment of their file. That tells me the bank is not out of love with the card business, but has an opportunity to invest elsewhere.”

Mr. Hammer said he expects this partial-sale trend to continue this year. Several purchases initiated last year will be announced in the next few weeks, and the second quarter will tell the tale of how the rumored economic slowdown may affect the rest of the year, he said.

“Chargeoffs may be up in 2001, and there will be some pressure on credit quality,” Mr. Hammer said. The Federal Reserve’s decision to lower interest rates may help keep the seller market robust by increasing the money supply, he said.

A buyer’s own recent purchasing experience may affect how aggressively it bids on a portfolio. Banks that have bid on several portfolios only to lose out to a rival may bid high to win, Mr. Hammer said. “On any given transaction, you may have 10 bidding on it, but only one wins.”

The growing popularity of agent banking may also be driving up portfolio premiums. , Frank B. Martien, a senior consultant with First Annapolis Consulting of Linthicum, Md., said these deals tend to gather higher premiums because the new account-referral relationship adds value. “The premium represents the bragging-rights number of the industry.”

Buyers may offer a higher portfolio premium and offset it with lower ongoing fees for each new account opened in the selling bank’s name, Mr. Martien said. This is shrewd economics for both buyer and seller, he said.

“The fact that the buyer is paying less per new account has a benefit to the seller, because it means the buyer may be more aggressive in generating new accounts because they pay less,” he said.

Mr. Martien said he expects 10 more midsize issuers to sell their portfolios and enter into agent bank relationships this year. Two or three more large issuers with more than $1 billion of receivables will get out of the business this year as well, he predicted.

Dennis Shea, managing director of Auriemma Consulting Group of Westbury, N.Y., said the same few large card issuers tend to buy up whatever decent-quality receivables are on the market. Citibank and MBNA are “the two that have made the most of the big recent purchases,” he said. “If it is a large transaction, it is usually one of these two that has won it.”

In general, authorized issuers of Visa and MasterCard cards bid on the bank card portfolios up for sale. Last month there was one noteworthy exception: American Express Co. — which has long sought card-issuing partnerships with U.S. banks — bought the $225 million portfolio of Bank of Hawaii, a subsidiary of Pacific Century Financial Corp. Amex said the Visa/MasterCard portfolio will be rebranded as American Express cards this year.

Mr. Hammer’s annual survey said that while 2000 was notable because of the number of deals that took place, 1998 was a record year in the amount of card receivables that changed hands: $32.2 billion, against $19.4 billion sold in 1999 and $19.7 billion sold in 2000. Premiums were low in 1998 (13.1% on average). That year 26 deals took place, and the average cost to acquire an account was $116, 31% lower than last year.

Mr. Hammer said premiums today vary by portfolio size, with smaller deals averaging as low as 11.6% and some larger ones fetching 19%. Moreover, the minimum threshold for deals among many issuers has risen substantially; fewer buyers are seeking smaller portfolios compared with a few years ago, he said.

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