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This story appears in the August 2009 issue of Cards&Payments.
Smaller card issuers looking to sell their portfolios and exit the credit card industry may have a difficult time finding buyers. Demand for typical card portfolios has dried up along with the economy, according to Jim Walsh, president and CEO of Brookwood Capital LLC, which consults with buyers and sellers of credit card portfolios.
"I am getting tons of calls, but I can't find buyers for most of these card portfolios," Walsh says. "I can't get rid of them even at a discount."
Buyer interest continues in portfolios consisting mostly of variable-rate accounts, those carrying an average charge-off rate of less than 4% and those with accountholders that have high FICO scores. But it is rare to see such portfolios on the selling block, Walsh notes.
"Buyers also prefer variable-rate accounts because next year under the new rules it will become more difficult to change cardholders' interest rates," he says.
Under the Credit Card Accountability, Responsibility and Disclosure Act, as of Feb. 22, 2010, issuers no longer can raise cardholders' interest rates on existing balances except in certain circumstances, such as when a payment is more than 60 days late or the annual percentage rate is a variable rate tied to an index.
Portfolio buyers also are keenly interested in charge-off rates because charge-offs are "a huge indicator of future profits and losses," Walsh says.
Demand for card portfolios has fallen steadily for the past two years, Walsh notes.
"Two years ago, sellers could get a 25% premium on their portfolios," he says. "But as charge-offs have risen and profitability has fallen, it has become increasingly difficult to find buyers for a lot of typical portfolios."
