1997 CARD SALES MORE THAN TRIPLE 1996 LEVEL
Thousand Oaks, CA — The volume of card portfolio assets sold for all of 1997 rose dramatically compared to 1996 numbers, according to a release by R.K. Hammer Investment Bankers, a California-based bank advisory firm which specializes in such card deals.
Deal Highlights for 1997:
Over $20 billion involving 22 transactions have been announced in the card industry during this year, which compares to $7.1 billion and 21 transactions for all of 1996. This data excludes the impending sale of the AT&T card deal, not closing until 1998.
Average premium price for 1997, at 13.27%, is down from an average of 17.70% for 1996, recognizing the larger size and pre-approved solicitation nature fo some deals in the current reporting period.
The largest deals this year were: Bank of New York, $4.0 billion going to Chase; and Advanta, $10.5 billion going to Fleet, both announced in the Third Quarter.
Other card portfolio buyers this year: Bank of America, GE Capital, Associates, Metris Companies, PNC, FNB Omaha, NOVUS, and MBNA.
These figures do not include mergers of equals or whole institution purchases (i.e. Bank One/First USA, Dean Witter Discover/Morgan Stanley, NationsBank/Barnett, First Union/Signet, First Union/CoreStates, and National City/First of America); small portfolio sales, less than $15MM, this smaller segment producing an estimated 70-80 private deals each year; nor over $1 billion in private label/oil company portfolio sales during 1997.
Average earnings multiples for premiums paid have been 5.10% (Average card pre-tax ROA of 2.60% divided into average premium price of 13.27%).
The estimated range of prices for card portfolios this year has been from less Par value (or no premium) to over 24% for the highest quality assets, with the average being 13.27%.
Other Observations from the 1997 Hammer research:
1. New portfolio purchasers successfully entering the hunt for card assets.
Long-time successful bidders such as GE and Associates, previously enjoying a large market share of deals done each year, have shared the victory percentages this year with such newer card portfolio acquisition players as Bank of America, Metris, and Fleet.
Former players also successfully back in the hunt.
Former winning bidders such as Chase, earlier a perennial favorite in deals like this back in the 1980’s, have jumped back in with several large acquisitions in 1997. As evidenced by a very hefty 25% ($270 per account) premium on the pending AT&T deal, we also look for Citicorp to again be in the quest for portfolio purchases.
Expect some other surprise sellers in 1998.
With AT&T’s $14 billion card business expected to close in the 2Q 1998, next year is expected to produce even larger numbers and volumes of card assets traded. Several other larger card companies are looking at valuing their card programs, to make decisions about growing vs. divesting. Most boards of directors are asking, “what would our market value be, if we were to sell, too.”
4. Unusual Sale Alliances Seen
Some very unusual sale situations developed in 1997, and are expected to continue into 1998. Some of these involved the common purchase of only card receivables, but the far more unusual structuring of facilities and people into the transaction mix and establishing local charitable foundations as well. Buyers this year seemed to be smarter in recognizing the concern for selling management is not just asset redeployment, but the concern for the people on site who helped them build a marketable business to begin with.
CARD PORTFOLIO SALES — TWELVE YEAR HISTORY
Range of Estimated Avg. Wtd. Assets Sold
Gross Premiums Gross Premiums #Transactions ($ Billions)
1997 N/A – 24.0% 13.2% 22 $20.80
1996 0.0% – 23.0% 17.7% 21 $ 7.12
1995 5.0% – 27.5% 20.7% 19 $ 0.91
1994 7.0% – 21.0% 18.0% 18 $ 0.75
1993 7.1% – 23.0% 18.1% 14 $ 0.82
1992 16.8% – 25.0% 16.8% 17 $ 0.88
1991 7.0% – 24.0% 14.0% 32 $ 3.80
1990 7.0% – 27.0% 18.7% 26 $ 5.40
1989 3.0% – 25.0% 18.9% 25 $ 6.60
1988 7.8% – 25.5% 20.3% 15 $ 1.60
1987 10.5% – 16.0% 20.3% 6 $ 0.86
1986 14.3% – 29.0% 20.4% 3 $ 1.60
1) National Brand deals only (MS-VISA); not privately label or retail transactions
2) “Gross” Premiums, prior to discounting for delinquent/statused accounts
3) Does not include numerous smaller deals, typically 4) Does not include “mergers of equals” or total organization purchases
5) Excludes AT&T sale to Citicorp (2Q98).
Re: Variables Impacting Sale Price, for a Card Portfolio Transaction
The following are some examples of the kinds of attributes and situations which prompt a premium valuation to be calculated:
1. Credit Quality, as evidenced by original credit criteria, credit bureau risk scores, behavior scores, bankruptcy scores, and the trends of those score patterns.
2. Attrition Rate, the percentage of accounts and balances (and the profitability of those accounts) which close voluntarily (customer requested closure) vs. involuntarily (bank revoked).
3. Income Yields, the APR, annual fee structure, nuisance fee structure, teaser rates outstanding, the percentage revolving.
4. Open vs. Closed, the percentage of accounts and balances which are open to buy vs. those which are closed (but who also may be paying as agreed, and therefore not delinquent).
5. The Policies and Processes at the seller, and the degree to which those vary from those of the buyer, creating improvement opportunities.
6. The Data Processor of the seller, and that of the buyer, necessitating a conversion of accounts or merely a simple transfer of BIN/ICA.
7. The ROE/ROA hurdle rates at the buyer, the minimum returns required.
8. The Operating Expense of the buyer.
9. The Life-span/Premium amortization period used by the buyer, typically 7-10 years.
10. Any unusual liabilities or other conditions which are to be assumed by the buyer (i.e. facility, staff, equipment, etc.).Details