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As Bank of America and other large banks try to dispose of unwanted credit card assets, they are fueling a slow revival in card portfolio M&A — and creating opportunities for smaller banks to get back into the issuing business.
August 15 -
As potential buyers kick the tires of a few big credit card portfolios on the block, the issuers' private-label card operations for the first time in years could be an advantage, instead of a drag, thanks to changes in the economy and in industry regulations.
July 13 -
Sharp reductions in credit card bad-debt and total expenses, and increased use of private-label cards, helped lift Target Corp.'s credit card segment in its fiscal first quarter.
May 18
Target Corp.'s credit card unit earned $171 million for its second quarter ended July 30, up 14.8% from a year earlier, the retailer said on Wednesday.
The Minneapolis-based company is benefiting from sharply lower card defaults after the financial crisis. Losses from bad credit card loans declined 89.1% to $15 million from $138 million a year earlier.
Target's charge-off rate for the quarter was 6.5% — almost half of the 12.2% the company reported a year ago. As a result of the improved performance, Target reduced its loan-loss reserve by 39.2% to $565 million from $930 million.
The business also shrank as it improved. Credit card revenue during the quarter fell 15% to $345 million from $406 million, and overall credit card receivables decreased 12.7% to $6.2 billion from $7.1 billion. Average receivables funded directly by Target decreased 20% to $2.4 billion from $3 billion.
Chief financial officer Doug Scovanner said in a conference call with analysts on Wednesday that Target's credit card unit results exceeded expectations. He also said that the 5% Red Card loyalty program Target started in October 2010 is driving incrementally higher store sales.
Scovanner told analysts that the company continues to seek a buyer for Target's
Interest from potential buyers has "met or exceeded" expectations, Scovanner said, adding that Target believes it may close a deal to sell its card portfolio later this year or early next year.
"At the moment, the recent turmoil in global capital markets does not appear to have changed this view," he said.
Target Corp. reported net earnings for the quarter of $704 million, up 3.7% from $679 million a year earlier.
