TD Banknorth Inc.’s return to credit card issuing marks a strategic reversal born out of the cumulative effects of a series of deals, not all of them involving Banknorth itself.
It was more than two years ago that Bank of America Corp. agreed to buy MBNA Corp. At the time, TD Banknorth, an MBNA client majority-owned by Toronto-Dominion Bank, did business only in New England.
Since then, the Portland, Maine, company has sold the rest of itself to Toronto-Dominion, which has a big credit card operation in Canada; expanded into three states, and into the private-label card business, by buying Hudson United Bancorp.; and agreed to buy Commerce Bancorp Inc., which would add four more states. This adds up to a competitive situation in which the company says it is unwilling to let another national retail banking company handle its customers.
“We want to control that destiny ourselves,” said Jim Gaffney, its executive vice president of credit card services.
The $44 billion-asset TD Banknorth said Tuesday that it plans to begin issuing cards itself next quarter. (B of A would continue to serve cardholders acquired before November.)
TD Banknorth’s 1998 contract with MBNA expired in September, and “we saw this as a huge opportunity for us to get back into the business and obviously make it a good, scalable business,” Mr. Gaffney said. “Card issuing surely runs good returns.”
Bringing the work back in-house makes sense for what is now part of a larger organization with $5.6 billion of credit card receivables in Canada, he said. “We can take advantage of the strength of” Toronto-Dominion “to help us be a solid card issuer in the United States.”
When the Hudson United deal was announced in 2005, W. Edmund Clark, Toronto-Dominion’s chief executive, said that it liked the Mahwah, N.J., company’s private-label card operation. “That may be a space we can continue to build,” he said then.
Mr. Gaffney said running that business got TD Banknorth interested in returning to the general-purpose card business. “The private-label business that came with Hudson gave us food for thought along that way, and we were able to parlay that into a full evaluation of reentry into the market.”
TD Banknorth is not the first company to reconsider an MBNA agent agreement in the wake of B of A’s acquisition, of course. When the deal was announced in 2005, Wachovia Corp., which had outsourced its credit card business to MBNA, decided to bring the work back in-house.
Asked why TD Banknorth did not cancel its deal with B of A more quickly, as Wachovia had done, Mr. Gaffney said his company “took a prudent measure” of evaluation before deciding to go back into the business. Like Wachovia, TD Banknorth says it will solicit only its own customers, through branches and direct mail, rather than trying for mass-market distribution.
SunTrust Banks Inc. in Atlanta sold its portfolio to MBNA in 1999. But in March the banking company transferred its card business from B of A to InfiCorp. Holdings Inc., an Atlanta unit of First National of Nebraska.
“When they sold it to a monoline, it was one thing, but when it’s owned by a full-fledged bank, they see that they gave away a piece of their business,” said Aaron McPherson, the research director for payments at Financial Insights, a Framingham, Mass., unit of International Data Group Inc. “B of A is in the game to own relationships, and when banks look at that, they don’t think B of A is going to stay out of their accounts.”
Betty Riess, a B of A spokeswoman, said, “Our financial institution business continues to perform better than expected, and we are confident we can grow the business.”
