This has been a banner year for credit card portfolio sales as banks moved to shed some of the riskier portions of their businesses.

An annual survey by R.K. Hammer Investment Bankers showed $7.1 billion of card receivables changed hands this year in blocks of at least $15 million.

By contrast, only $910 million of portfolios were sold in 1995. The 1996 figure broke the 1989 record of $6.6 billion.

"This is a conscious business decision to exit the most volatile piece of the business," said Robert Hammer, head of the Thousand Oaks, Calif., firm that did the study.

The buyers of the riskier portfolios, he said, have "a serious commitment to the business" and "have the capital to grow (and) the management and stomach for higher risk."

Industry experts said they expect the trend to continue as part and parcel of the increasing concentration of card industry assets in fewer institutions.

"The top 25 control 80% of the business," said Michael J. Freudenstein, an analyst at J.P. Morgan & Co. "Weaker players are looking for alternatives."

With a deterioration in credit quality, banks with smaller-scale operations tended to sell loans not associated with their local, or core, relationship banking accounts.

Just last week, Prudential Bank and Trust Co. announced it would jettison $1.1 billion of MasterCard and Visa accounts nationwide, focusing instead on its cobranding program.

This year's $7.1 billion of transfers included jumbo deals like Bank of New York Co.'s $3.4 billion sale of its AFL-CIO affinity portfolio to Household International. Norwest Corp. sold nearly $1 billion to Ford Motor Co. affiliate Associates National Bank, and Barnett Banks Inc. sold $776 million of "noncore" receivables to Household, retaining accounts of its own retail customers.

Jerry Craft, president of Card Issuer Program Management Corp., Atlanta, said some of the sales were prompted by the expiration of large affinity and cobranding contracts. The nonbank partners shopped around for new alliances - as was the case with the AFL-CIO.

Mr. Craft said credit card profit margins historically were so great that they adequately rewarded even average-performing banks. Those returns are no longer so rich.

"Folks are looking to maximize their revenue, and it is a challenged marketplace today," Mr. Craft said. "Attrition is also up, losses are up, many issuers are having more of a challenge understanding how to grow their portfolio and the value of it. They are saying, 'Do I stay in the business or maximize the value by selling?'"

For those who choose to stay in the business, new strategies are in order.

Mr. Craft said it's smart for banks to focus on customers who fall within the bank's market area. This will give banks "a better opportunity to sell a bundle of financial services."

These customers, he said, are more valuable to "most institutions than just a credit card relationship in a more remote location."

Brian J. O'Hare, president of Norwest Card Services, Des Moines, said pricing and margin pressures have led some larger banks to shed portions of their portfolios. Norwest decided to sell the riskier national portion of its holdings created through a 1993 mail solicitation.

"The credit card business is relatively less attractive than it used to be," Mr. O'Hare said. "The consumer is different now than three to four years ago."

Consumers have access to more credit, he said, and respond differently to financial problems. They may "go bad on $15,000 to $20,000, not $2,500," he said. "They have 10 credit lines now as opposed to two or three."

Mr. O'Hare said the challenge for Norwest is to differentiate itself from the competition.

Differentiation can occur, he said, through "product features, like pricing, or in terms of being able to identify more creditworthy customers than the competition, at the same price point."

A veteran of past portfolio sales, CoreStates Financial Corp. of Philadelphia sold less than $1 billion of receivables in 1991 to Household. At the time, it was trying to rebuild its capital base after suffering losses in the 1990-91 recession.

"We had determined that we had a marketing edge within our core region," said Gary Brooten, a CoreStates spokesman. "Our projection was that the national credit card market was getting very competitive and gimmicky. We lacked scale to compete with the big players."

Mr. Brooten said CoreStates sold its national accounts because their credit quality was slightly lower than that of the regional portfolio.

After the 1991 sale, CoreStates was left with $900 million of outstandings. It has since built this up to $1.6 billion.

Part of CoreStates' strategy to regain stamina was eliminating preapproved applications in 1994.

"This enabled us to stabilize credit quality on the portfolio currently," Mr. Brooten said.

Mr. Hammer said the number of banks bidding for portfolios has held steady - between 25 and 30 - but the number of winners is shrinking.

Consolidation, the study showed, has affected pricing by eliminating competition and driving average premiums - the prices paid on top of account balances - below 18%. In some cases, portfolios of exceptionally poor quality are selling at book value. Similar lows had not been seen since average premiums dipped below 17% in 1992.

"A lot of people look at deals, fewer bid on deals, and there are fewer yet who get the deal," Mr. Hammer said.

The aggressive and successful buyers this year were Household International, Associates, and MBNA Corp.

Other successful bidders in recent years included the monoline issuers First USA Inc., Capital One Financial Corp., and Advanta Corp., as well as leading banking companies like Citicorp and First Chicago NBD Corp.

"Like the industry at large, nonbanks have considerably more assets than ever before," Mr. Hammer said.

"They have done an extraordinary job of bringing well-capitalized, well- disciplined marketing and purchasing," he said. "The trend is with them getting more assets and (being) more successful doing deals."

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