With the backing of two major banks and a veteran management team, Partners First is hoping an unusual joint venture can improve on what its owners did by themselves.

The Baltimore-based company was formed in January by BankBoston Corp., Harris Bankcorp, Chicago, and First Annapolis Consulting, Linthicum, Md.

"The two banks involved did not feel that they had the resources - and that may be capital, critical mass, or management - individually to emerge as niche players" in credit cards, said John R. Soderlund, president and chief executive officer of the privately held venture. "But they wanted something that was more than an adjunct to their overall retail business."

They have put together a $2.4 billion, two-million-customer portfolio that would be in the mid-20s among banks ranked by card receivables.

They aspire to reach $15 billion to $20 billion within five years, in large part by offering their expertise to others.

The idea of outsourcing and pooling resources is not new. Agent bank and service bureau programs have long been common in an industry where size and scale economies matter.

BankBoston and Harris, a subsidiary of Bank of Montreal, were looking at how to live through an ultimate shakeout.

"What is emerging is an industry structure where four or five major players will have in excess of $50 billion of outstandings," Mr. Soderlund said. "Then you will have six to 10 niche players, related to specific markets or capabilities, with assets in the range of $8 billion to $15 billion."

Partners First wants to support regional and superregional banks that want to hold on to card niches.

"These folks have seemed to align themselves with some rather large portfolios, as opposed to the smaller community and regional banks that do conventional agent programs," said Robert K. Hammer, chairman and chief executive officer of R.K. Hammer Investment Bankers, Thousand Oaks, Calif.

"Alliance is the operative word" if Partners is to succeed, Mr. Hammer said. "A true partnership is a good way to go, as opposed to simply selling an agent bank program."

Mr. Soderlund said Partners' aspiration is a variation of that of a monoline or pure card issuer.

Besides promoting the brands of its bank partners, the company would like to grow through traditional direct marketing, portfolio acquisitions, and strategic alliances.

"Monolines like Providian and Capital One don't do as much partnership marketing," said Jeffrey Baxter, principal of S.J. Baxter and Associates, Forest Hill, Md.

"Given that we have two large banks as primary owners," said Mr. Soderlund, "we are not likely to be a down-market lender a la Providian or Metris," the Fingerhut Companies spinoff that profits despite a high chargeoff rate.

"Our owners don't have that risk appetite, and we will tend to be more in the core borrowing and upscale market than in the subprime market," Mr. Soderlund said.

"We want to have a real focus on the credit card business," he added. "Banks, unlike monolines, are financial conglomerates, and it is hard to bring focus to any one business within that context."

Partners began to expand this summer by purchasing $190 million of receivables from Comerica Bank-Midwest, a subsidiary of Detroit-based Comerica Inc.

Mr. Soderlund said he was in discussions with four or five large banking organizations to manage "nonstrategic assets" on their books. "Typically these would be credit card assets outside of a bank's geographic footprint," he said.

First Annapolis has a strong influence in Partners First. Mr. Soderlund spent six years there after seven with the Washington-based firm Furash & Co.

Another First Annapolis alumnus, Dean Papadopoulos, is Partners' managing director of marketing and analysis.

Harry G. Pappas Jr., chief financial officer and managing director, finance and administration, has had CFO responsibilities at Equitable Bancorp., MBNA Corp., MNC Financial Inc., and Maryland National Bank.

They have entered a market very different from the one the monolines came into in the early 1990s, with rampant competition and high loss ratios.

"We invest a lot of resources and have developed a series of proprietary bankruptcy management and credit management models," Mr. Soderlund said. "We pull a full credit bureau report on the entire credit file every quarter and run it through our risk models and regrade all our accounts based on the risk profile.

"What we are trying to do is identify high-risk accounts early in the cycle, so we can take appropriate action."

With what it sees as a good mix of seasoned credit talent, data warehousing, and analytical capabilities, Partners First aims to grow faster than the industry at large.

"The market will probably grow about 6% to 8% (in 1998) and next year 8% to 10%, but we are looking to grow more in the 15% to 20% range," Mr. Soderlund said.

"Our investors were not looking for near-term earnings, they were looking to build a profitable and successful credit card issuing business - and that means investing in technology in marketing," he said.

"If they continue to be a small player, they have failed," said Mr. Baxter. "They have to move up in order to be successful, because growth is the whole premise for their business."

Mr. Soderlund said even if Partners First hits its growth targets, "I believe at some level we will always be a niche player, because to go beyond that you need to be in the $40 billion asset range or bigger." n

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