Further Consolidation of Bank Cards

There appears to be a growing number of commercial banks that are abandoning the credit card business. A recent case in point is the announcement by the Wachovia Corporation that it may sell its credit card portfolio. In her article in the New York Times, Riva D. Atlas credits the move to increasing "competition with companies spending heavily to woo fickle consumers with promotions." Ranked as the 12th largest issuer of bank credit cards, Wachovia has about 2.8 million cardholders and some $8 billion in receivables. The receivables accounted for about 12 percent of the bank's net income last year. However, Beverly Wells, manager of retail financial services at Wachovia is quoted as explaining, "We've been able to achieve 10 to 12 percent growth in receivables, but what we were forecasting going forward was in the single digits. The amount of money it is taking to acquire and retain customers is getting higher, and that was threatening to erode the profitability of the business."

Wachovia has retained Credit Suisse First Boston to analyze the alternatives: sell the portfolio, form a joint venture to hold the portfolio or keep it. Richard Bove, an analyst at Raymond James & Associates, has estimated that a sale could bring $8.6 billion.