What’s good for the goose is good for the gander when it comes to credit card portfolio sales these days.
Bank of America Corp. sold close to $1 billion in credit card assets in two separate deals announced Dec. 21 as part of its effort to slim down and focus on its core business lines.
Buyers U.S. Bancorp and First National Bank of Omaha, meanwhile, continue to grow their cards businesses through acquisitions like the BofA deals.
U.S. Bancorp’s Elan Financial Services snapped up $700 million in card portfolios serving 28 financial institutions on Wednesday. Elan will own the assets but will continue to brand and market the credit cards under the respective financial institution names under an agent-bank partnership. The bank will issue new cards to clients in mid-2012.
“We’ve done a number of very nice transactions over the last couple of years in this space,” Pamela Joseph, vice chairman and head of U.S. Bancorp Payment Services, said in a Dec. 21 interview. “This deal really solidifies us as the market leader in the agent-financial institution card business.
Elan now has more than 1,700 partner banks, says Joseph.
“It’s a very nice growth area for our business primarily because we’re able to bring all our marketing expertise, loyalty programs and product offerings to our financial institution partners,” she says, adding that Elan maintains a focus on “new account and new customer acquisition” to help the partner banks grow their business.
The bank made more than 300 portfolio acquisitions between 2006 and 2010, and it experienced an average growth rate of 11% after the cards were converted to Elan, according to a Sept. 15, 2010, investor day conference presentation.
Joseph declined to provide updated figures on the bank’s growth in that business.
Going forward, the bank “does not have anything that we’re anticipating” for additional large acquisitions, Joseph says. But the bank “continues to look for opportunities in the marketplace,” she adds.
Moreover, “we do smaller transactions on a fairly regular basis, purchasing a credit union or community-bank portfolio directly” from the institution, Joseph adds.
The purchase follows several large credit card portfolio transactions by the bank since 2009, including a $1.3 billion deal with Citigroup Inc. in the fall of that year.
The purchase “is right at the heart of what they’ve done for a long time,” says Tim Kolk, president of TRK Advisors, adding that the bank has been in the agent-bank business since the 1970s.
“They have a history of buying groups of portfolios when they can,” Kolk adds.
And that portfolio-acquisition strategy, when they are able to employ it, is likely to continue to serve U.S. Bank going forward.
“Elan is a grower, and this is a fast way for them to go out and get these relationships,” says Steve Kietz, executive vice president and general manager of strategic partnerships at edo Interactive Inc. “To go out and get 28 deals would take many man-months and many sales meetings. It’s a fast way to get good quality, low risk assets.”
But Elan is not alone in ramping up its presence in the agent-bank market.
First National Bank of Omaha’s First Bankcard announced on Wednesday that it too had scooped up $285 million in credit card assets from BofA (
“That was a good transaction for us because our strategy really is to become a premier issuer of partner cards in the marketplace,” Stephen F. Eulie, First Bankcard president, said in a Dec. 21 interview. “We have the leadership in that space, and we like consumers in that space. They are loyal, their credit quality is very good, and we believe the bank partners we’ve chosen will be able to work with create good products for customers,” Eulie adds.
First Bankcard has more than 500 agent bank partners.
None of the banks involved in the sales announced Dec. 21 would comment on the terms or pricing of the two deals. But regardless of whether BofA was able to sell the assets at a premium, the sale strategy fits with the bank’s plan to get some assets off its books and refocus on core business lines.
“We decided earlier this year that the agent-bank relationship business, where we issue cards on behalf of other financial institutions, was not core to our goal of building deep relationships and we began the process of exiting those relationships,” a BofA spokesperson said in an emailed statement. “In many cases, our agent-bank business has served predominantly single-service card customers with limited opportunity for Bank of America to deepen relationships.”
The spokesperson said BofA expects to sell most of its agent-bank portfolio by the end of 2012.
“I think this is as much for BofA eliminating some risk and lowering expenses as it was creating a revenue stream,” says edo’s Kietz.
But Robert Hammer, chairman and chief executive of bankcard advisory firm R.K. Hammer, says BofA could have scored a healthy price on the deal because the portfolio was likely of good credit quality.
“U.S. Bank is a very conservative institution, and it rarely buys unless it has good credit quality,” says Hammer, who estimates the deal had an “upper teens premium” over the price of the assets, a “better-than-average price.”
“BofA’s strategy is perfectly matched with Elan’s strategy of growing assets,” Hammer adds. “It’s a logical step,” and there are likely to be “other deals like this,” he says.
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