CompuCredit Corp., the Atlanta subprime card specialist, may be preparing to buy card portfolios.
Though it wants to grow organically, it hopes to spend some of the $300 million it recently raised in a convertible note offering on subprime card portfolios that may hit the market soon.
"I think that the consolidation in the credit card industry will hopefully provide some opportunities for us to purchase credit card portfolios," Jay Putnam, its director of investor relations, said Monday. "That's Metris, Providian, MBNA."
Washington Mutual Inc. bought Providian Financial Corp. last month. HSBC Holdings PLC is buying Metris Cos., and Bank of America Corp. is buying MBNA Corp.
Daniel B. O'Sullivan, an analyst with Utendahl Capital Partners LP, said it is not unusual for acquirers of card companies "to go through the entire business and divest what they don't want."
For example, he said, some accounts might be less attractive to the buyer because of low credit scores - exactly the kind of deal that could appeal to CompuCredit.
"That's pretty much what Bank of America did when it bought Fleet," Mr. O'Sullivan said - and CompuCredit bought some of the FleetBoston Financial Corp. accounts that B of A jettisoned.
Mr. Putnam said sellers of nonprime credit card portfolios generally "talk to us, because we're obviously a major buyer of that asset."
The capital-markets borrowing announced last week will fund acquisitions and ongoing corporate needs, Mr. Putnam said. It could help the company "diversify into new businesses or just expand some of our existing platforms," he said.
"That could be buying a credit card portfolio, expanding our auto-lending platform" or putting money into other areas, including its payday lending business, Mr. Putnam said.
Buying up subprime card portfolios has been a key part of CompuCredit's strategy. But in August, when it reported its first net gain since 2001 in new accounts not related to a portfolio acquisition, it said it would expand its marketing budget to further increase organic growth.
The company has also been adding issuing bank partners to boost its card business. In October it announced an agreement under which First Bank of Delaware will issue subprime credit cards with very low credit lines for low-income people; transactions would be routed across Discover Financial Services LLC's network.
In September, CompuCredit announced that it would purchase a subprime card rival, CardWorks Inc. The deal would provide its first banking charter; CardWorks owns Merrick Bank, a Utah industrial bank.
CompuCredit could use Merrick to issue cards itself. To date it has issued them mostly through a partnership with a Synovus Financial Corp. unit, Columbus Bank and Trust Co.
Dennis James, the president of Purpose, a CompuCredit subsidiary that develops products for unbanked and underbanked people, said CompuCredit has diversified into several areas in the past few years, including payday lending and auto loans.
It did so largely in response to the stock market declines of 2001 and 2002, he said. The company had tended to depend on the capital markets to fund its acquisitions, but when the market "went awry," its stock plunged - to about $4 in late 2002.
"We made the decision that we wanted to try and control our own destiny as much as possible," Mr. James said. "To do that we needed to not be reliant on a single party."
CompuCredit now has five bank partners, but only some of them issue its cards.
Mr. O'Sullivan said the diversification has certainly made investors more "receptive" to CompuCredit's stock. "They're not a one-trick-pony; they're not a monoline credit card company," he said Monday. "That's why the stock has moved as it has."
Since its 2002 low it has steadily inched upward. Its high, set Nov. 11, was $45.78; it closed Monday at $41.66.
Mr. O'Sullivan said that CompuCredit's diversification efforts have had a common theme: to become a "full-service retail lender to the subprime customer segment."
"They don't view these as separate products. They view it as: This is our customer base, and we know these are their financial needs - we know these are the products that they use - so we want to have this full menu of offerings to be a full-service lender to our customers."
Jay Giesen, an executive vice president of the Purpose division Purpose Solutions, said the CompuCredit card that will use the Discover network will aim squarely at the subprime market. It will be usable only for merchandise purchases and will not permit automated teller machine access or cash-back transactions.
The credit lines will start out at $50 to $100, and the consumers will have to pay the entire balance every month.
"With positive performance from the customer, we'll move the customer up into a larger line of credit," Mr. Giesen said. "It's a tremendous opportunity for consumers to either build a credit history or repair a credit history."
