When it completes its acquisition of May Department Stores Co., Federated Department Stores Inc. would have to consider whether to get out of the private-label credit card business.
During a conference call to discuss the $11 billion deal, which was announced Monday, Karen Hoguet, the chief financial officer at Federated, said it would consider selling off its entire card portfolio.
The deal is expected to close in the third quarter. "We expect to make a decision … [about Federated's portfolio] in the second quarter, and likely what we do for Federated we would also do for the May company," she said.
If the portfolio is sold, the roster of retailers that own their own store card receivables would shrink. According to the Carpinteria, Calif., industry newsletter The Nilson Report, just three retailers would be left with portfolios of over $1 billion - Target Corp., which reported $2 billion of receivables at the end of 2003; the Army and Air Force Exchange, which had $1.9 billion; and Kohl's Corp., which had $1.2 billion.
Federated is currently the largest in-house store card issuer, and May is the fourth-largest, according to the newsletter.
TowerGroup, the market research unit of MasterCard International, says the gasoline company Chevron U.S.A. Inc., a unit of ChevronTexaco Corp., had the largest private portfolio, with $3.3 billion of receivables at the end of 2003, though it is not considered a retailer.
Robert Hammer, the chairman of R.K. Hammer Investment Bankers of Thousand Oaks, Calif., said Federated's portfolio would draw a great deal of interest from the top three private-label card issuers: Citi Commerce Solutions, the Citigroup Inc. unit that is the largest such issuer; General Electric Co.'s GE Consumer Finance; and HSBC Holdings PLC.
JPMorgan Chase & Co., which got into the private-label business with the purchase of $1.8 billion of receivables from Circuit City Corp. last year, might also be interested, Mr. Hammer said.
"For JPMorgan, this would be a perfect way" to expand in that business, he said. "If you have made a commitment you need to do so with scale, and this has some modest amount of scale. It would put them in a nice position. But at the end of the day, all four will be" in the bidding.
During the conference call, Ms. Hoguet said Federated's portfolio currently has around $4 billion of receivables, though about $1 billion of that is owned by GE Consumer Finance; Federated owns the rest. In the quarter that ended Jan. 29, 2004, Federated reported $2.2 billion of proprietary card receivables and $869 billion of general-purpose card receivables. At the end of 2003, May reported $1.9 billion of store credit card loans, the latest figures it has reported.
May purchased the Marshall Field's department store chain, and its approximately $621 billion of private-label receivables, from Target in July.
Buying May would increase Federated's portfolio to more than $5.5 billion. That includes around $4.7 billion of private-label receivables, which would be the biggest private-label business to go on the block since Sears, Roebuck and Co. sold its $29 billion private-label and MasterCard portfolio in 2003.
Rolando DeGracia, a senior vice president of business development for the Americas at GE Consumer Finance, predicted in a January interview that several large retailer portfolios would go up for sale this year, because of slowing growth and rising chargeoffs.
The trend was nothing new, Mr. DeGracia said. "The retailers that still run operations in-house have been evaluating outsourcing operations for some time."
