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Bank of America Corp. sold $700 million in credit card assets to U.S. Bancorp on Wednesday, in the struggling Charlotte company's latest effort to slim down.
December 21 -
First National Bank of Omaha next year will launch three cobranded credit card programs, Steve Eulie, the president of First National's First BankCard credit card division, said.
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As Bank of America and other large banks try to dispose of unwanted credit card assets, they are fueling a slow revival in card portfolio M&A — and creating opportunities for smaller banks to get back into the issuing business.
August 15
Bank of America Corp. spent most of the past decade
The Charlotte company dumped close to $1 billion in credit card assets in two separate deals (
Bank of America is shedding these assets as it tries to overcome an
It is a major reversal for the company that, six years ago, paid $35 billion to
U.S. Bancorp, which bought $700 million of B of A's agent-bank credit card assets, said Wednesday that the deal helped it bulk up in one fell swoop.
"This deal really solidifies us as the market leader in the agent-financial institution card business," Pamela Joseph, vice chairman and head of U.S. Bancorp's payment services unit, told American Banker in an interview Wednesday.
"It's a very nice growth area for our business," and one where the bank "continues to look for opportunities in the marketplace," she says, adding that "we do smaller transactions on a fairly regular basis, purchasing a credit union or community bank portfolio directly" from the institution.
It is not the first time that U.S. Bank has snapped up unwanted credit card portfolios from a struggling, larger competitor. It
The $700 million B of A portfolio included card-issuing relationships for 28 financial institutions, including investment advisory firm Edward Jones. Joseph says that U.S. Bank's Elan Financial Services unit now has partnerships with over 1,700 financial institutions.
"Elan is a grower, and this is a fast way for them to go out and get these relationships," says credit card industry veteran Steve Kietz, an executive vice president at edo Interactive Inc.
"To go out and get 28 deals [with individual financial institutions] would take many man-months and many sales meetings. It's a fast way to get good-quality, low-risk assets," he says.
U.S. Bank has been building up its agent-bank business since the 1970s, and the purchase of B of A's assets is "is right at the heart of what they've done for a long time," says Tim Kolk, who brokers credit union card portfolio sales as the president of TRK Advisors.
"They have a history of buying groups of portfolios when they can," he says.
U.S. Bank will own the assets purchased from B of A but will continue to brand and market the credit cards under the respective financial institutions' names. The Minneapolis company will issue new cards to clients in mid-2012.
It is not alone in ramping up its presence in the agent-bank market — or in scooping up credit card assets that Bank of America is abandoning.
Separately on Wednesday, First National Bank of Omaha said it had bought $285 million in credit card assets from B of A. The deal includes 10 credit card portfolios, including nine partnerships with financial institutions, and one with the former Chrysler Financial.
"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, president of First National's First Bankcard unit, said in an interview Wednesday.
"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 us to create good products for customers," he says.
The bank, a subsidiary of First National of Nebraska Inc., says it expects to convert the B of A portfolio cards in 2012. It has over 500 agent bank partners to date.
Credit card portfolio sales slumped during the financial crisis, as losses surged on those loans and sellers struggled to find buyers willing to pay a good price for their assets. Even in recent months, HSBC settled for an 8.75% premium when it agreed to sell Capital One Financial Corp. a
None of the banks involved in the sales announced Wednesday would comment on the terms or pricing of the two deals.
But Robert Hammer, chief executive of card advisory firm R.K. Hammer, estimates that B of A could have scored a "better than average price" on at least the U.S. bank 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 that the deal likely had an "upper-teens premium" over the value of the portfolio.
But regardless of the price, industry members say that B of A's efforts to sell its agent-bank portfolios fits in with the bank's plan to get some assets off its books and refocus on core business lines.
For B of A, "this is as much [about] eliminating some risk and lowering expenses as it was creating a revenue stream," says edo's Kietz. "With all the changes going on, it's a good time to sit back, and if I have these 28 relationships, I can consider: How much does it cost to service them, how much do I make, should I exit?"
B of A spokeswoman Betty Riess said in an email that the bank expects to sell most of its agent-bank credit card assets by the end of 2012.
"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," Riess 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," she added.
