Banc One Corp. bought a place among the card industry elite when it paid $7.9 billion in June for First USA Inc. The companies have a combined 32 million cardholders and $36 billion of outstandings, good enough for third place.
But there must be more to this merger than raw numbers for it to pay off. The hunt is on for synergies.
Richard W. Vague, the First USA co-founder whom Banc One put in charge of this sprawling enterprise, is out to combine his organization's marketing prowess with Banc One's brand and branch network to find all sorts of new-product and cross-selling opportunities.
Mr. Vague replaced longtime partner John C. Tolleson as chairman and chief executive officer of First USA. Mr. Tolleson took a seat on $115 billion-asset Banc One's board but chose not to be involved in day-to-day management.
"One thing that has been clear to me is the number of doors that are open to us as a result of being associated with Banc One," said Mr. Vague, 41. "They include acquisition opportunities, partnership opportunities - just about anything you can think of."
For starters, there is selling credit cards, auto loans, home equity and mortgage loans, and mutual funds to both Banc One and First USA customers.
"We have always been interested in the retail financial services business," said John B. McCoy, Banc One's chairman and chief executive officer. "Our acquisition of First USA has enabled us to bring a lot more sophistication to the process."
First USA's performance has continued to impress analysts.
The second quarter was "one of the best ever," said Moshe Orenbuch, an analyst at Sanford C. Bernstein & Co., New York. "It came as a big surprise that they were able to still grow as rapidly as they did.
"They haven't missed a financial target yet," Mr. Orenbuch added.
First USA alone boosted outstandings by 30%, and the combined unit grew 16% from the first to the second quarter.
As the growth percentages suggest, First USA was a quintessential monoline company, which raises questions about what might happen to some of its initiatives as it becomes part of a superregional bank holding company.
For example, First USA chartered a savings bank to cross-sell products like home equity and auto loans to credit card customers. The company lost a key management member who was in charge of the thrift, Jack M. Antonini, to First Union Corp., and Banc One is poised to play the product development role that had been assigned to the thrift.
"Cross-selling is a very important strategy for us," Mr. McCoy said. "Banc One essentially has the full array of products, whereas First USA was simply in the credit card business and really couldn't do the cross-selling job.
"We think this will be much more efficient."
One of the first orders of business for the combined Banc One and First USA has been to step up mailings. Though Banc One would not confirm the speculation, some industry sources said its credit card solicitations in 1997 will approach a billion.
Robert G. Skolnick, executive vice president of BAI Global Inc., Tarrytown, N.Y., which tracks the card industry's direct mail, said all issuers sent out 1.5 billion solicitations in the first six months of 1997. He said First USA was responsible for about 300,000 of those.
"We have observed First USA and MBNA and others actively promoting a platinum product," Mr. Skolnick said. "As gold cards are commoditized, there is room in the industry for a premium type of product."
First USA recently completed two mailings of platinum card offers to Banc One's customer base.
"We were very gratified to find that because of the Banc One brand name, our response rates were higher," Mr. Vague said. "So we would expect, particularly in Banc One markets, to be able to use the well established Banc One name to enhance our marketing efforts."
First USA has had great success offering low-rate cards with no annual fee. It has also built a sizable cobranded portfolio, with more than 1,000 offerings.
But some observers say it may be time to change the formula.
"If I were at First USA, I would be exploring what is the next big wave for the industry because low prices and introductory rates will be difficult to control in the future," said Michael Auriemma, president, Auriemma Consulting Group, Westbury, N.Y.
Carole Berger, managing director, Salomon Brothers Inc., said First USA is "taking advantage of the fact that a lot of the smaller industry players are pulling back" in direct mail solicitations.
"They are convinced we have seen peaks in delinquencies and chargeoffs and they are more aggressive than the other banks we follow," she said. "First USA has stuck its neck out and said, 'The worst has passed.' "
Jay Gould, Banc One vice president of investor relations, said 30-day delinquencies for the combined credit card operation declined 9% from the first quarter to the second, to 4.76%.
Further evidence of what the monoline issuer is doing right, Mr. Vague said, is that First USA began to make adjustments for deteriorating credit quality as early as 1994.
"When the competition increases, response rates decline," he said. "Unless you have made adjustments in your credit and marketing areas by tightening your credit or introducing more innovative marketing to restore response rates, you are going to see worse credit."
Issuers who noticed the problems early now find "their credit trends are very favorable and are in a position to continue with robust marketing," Mr. Vague said. Others are forced to retreat.
"Banc One may realize the lower loss rate depended on the fact that it has continued to grow its portfolio," said K. Shelly Porges, CEO of Porges/Hudson Marketing, San Francisco. "As loss ratios go up, portfolios stop growing."
"We are trying to grow in a safe and sane way," Mr. McCoy said. "We are comfortable with credit card losses, so we are trying to be more active with solicitations."