Press
2014 card portfolio sales limped along
(January 12, 2015) — Leading card industry advisor, R.K. Hammer, just released their estimate for card deals done in 2014, and forecast for 2015. It is estimated that just five portfolios worth $2.7 Billion were involved, according to Hammer. This was down significantly from year end 2013 numbers, when an estimated $17.2 Billion in 10 portfolios were done that year. These 2014 portfolio sale figures, though, do not include numerous tiny card portfolio sales not tracked by the R.K. Hammer firm, those less than $10MM.
# Card Portfolios Sold
- 2014 5
- 2013 10
- 2012 37
- 2011 10
- 2010 12
- 2009 14
A number of factors seemed to contribute to the most recent steep downtick in the number of deals since 2012 – a good deal flow year by any historic measure at that time, with 37 deals done.
First, the underlying economy has come back. It also true that charge offs have significantly declined for most, and dividends and capital have been well restored. But some issuers are still sitting on the sidelines as to whether to sell or not. 2015 may prove better, with card sale prices rising again.
Second, the card industry hit by new regulation and legislation during the past five years is still undergoing a transformation of previous business models. Larger scale players have resumed massive marketing campaigns to reboot outstandings, but others have not committed to the same extent.
Third, some good news on the profit front – after the steep fall in ROA during/immediately following the recession, pre-tax ROA/ROE earnings for card have continued to climb year over year ever since, reducing financial pressures on issuers who might have otherwise considered selling such portfolios and who are now enjoying those higher operating returns. Card, with all its challenges, is still the best business in most financial services organizations, in terms of ROA/ROE/IRR.
Fourth, with fewer deals out there, it is likely that bonafide buyers will tend to raise their war chests in 2015 and thus their offers rising for the more desirable card assets, especially those with strong relationships and ongoing agent programs going forward. The better the agent relationship and brand loyalty of any given party, the more demand for those underlying assets. It’s supply and demand economics all over again, with fewer deals of scale out there at the moment. As that changes, though, we could see a larger number of potential sellers actually sell in 2015, as their intended card portfolio sale price hurdles are met or exceeded by eager buyers needing to once again grow their card businesses in a better economy. Premium percent prices have been rising. That will continue in 2015.
It was found previously that buyer/investor sentiment is higher for all classifications and segments of card portfolios: prime and super prime, and now “near-prime” and prepaid, too; all should benefit from a better, financially healthier market in 2015. Prepaid we note is also getting a lot more attention by regulators. The watchword is: “Do what you promise the new card applicants and card members.”
“We think that the last few years’ take away was this,” noted Hammer: “2012 seems now like an aberration period for card deals, with many very large sellers adding to the growing number and size of deals done that year. 2013 was more back to the norm, as between 2009 – 2011, around $10 billion in card sales each year, in a dozen or so transactions. 2014 was a yawn. The jury is still out as to just how much higher 2015 card deal flow and prices will prove to be. Be advised that deal flow probably can’t go any lower, though.”
For a more complete analysis on historic deals done and card industry portfolio prices paid, go to: Card Knowledge Factory®, or R.K. Hammer.com. Robert Hammer is a card industry expert with 30 years of experience doing card deals. He is Founder and CEO of leading card advisor, R.K. Hammer (Thousand Oaks, CA), and the creator of Card Knowledge Factory®, the research and analysis division at the Hammer company. The practice is segmented into three major core competencies: valuing and brokering card portfolio sales, serving as interim management for card companies going through transition, and as an expert witness for card issuers in litigation or valuation disputes.