KeyBank Buys Back Credit Card Portfolio

KeyBank has become the latest regional bank to bring its credit cards back in house.

The banking unit of KeyCorp (KEY) announced Wednesday that it has acquired its branded credit card assets from Elan Financial Services, a subsidiary of U.S. Bancorp (USB), and will begin to issue its own cards.

The portfolio includes roughly 400,000 consumer and business accounts of current and former Key customers and has about $725 million in credit card assets, the Cleveland bank said. The customers have balances of roughly $10 billion of deposits and $5.8 billion of loans at Key.

A number of banks, including Regions Financial (RF) in Birmingham, Ala., Sovereign Bank in Boston and First BanCorp (FBP) in San Juan, P.R., have brought their credit card portfolios back in house as a way to increase revenue. Since the Durbin Amendment capped interchange fees banks could charge for debit card transactions, banks have been looking for "new avenues for profits so this is a response to the new regulatory environment," Scott Siefers, a managing director at Sandler O'Neill & Partners, said.

A bank purchasing its credit card assets is a "straightforward way" to address concerns regarding asset growth, Siefers said. Asset quality has also been improving for credit cards and many of the credit cards belong to people who are already customers of the bank so these deals are generally seen as low-risk transactions, he said.

During Key's second-quarter earnings call in July, Beth Mooney, the company's chairman and chief executive, said the bank was committed to lowering its efficiency ratio through a combination of cutting costs and growing revenue.

In the announcement of the Elan deal, Mooney said: "The credit card acquisition and decision to begin self-issuance strengthens our product offerings, enhances the client experience, and will position us to grow revenue. It's our relationship banking model in practice. Owning the entire client relationship, including credit cards, allows us to see our clients' full financial picture and tailor products and services to meet their needs."

The deal is also a way for Key to put excess liquidity to good use, Siefers said. The financial terms were not disclosed.

"It's a small transaction but strategically it's one that we like," he added.

The $86.5 billion-asset Key also said Wednesday that it had entered into an exclusive new arrangement for merchant services from Elavon, another U.S. Bancorp unit. This will allow Key, which has worked with Elavon for more than 14 years, to more fully integrate its merchant processing services into its overall payment products for its business customers, the company said.