“In addition to rising card portfolio deal prices, the most interesting thing about card market now,” notes R.K. Hammer, “is that the rising deal flow has for the second year in a row cut favorably across all card segments: prime/super prime deals, subprime, private label, and prepaid card portfolios – all stand to benefit again – yet in widely varying deal pricing degrees.
“In the past, the prime/super prime card segment seemed to be the main active one, with far more pre-sale fairness opinions and valuations and portfolio sales being done in that category.”
CARD DEAL PRICES WILL VARY WIDELY, THOUGH
“Prices for various deals will necessarily vary significantly by segment characteristics (as great as $320 per account sold for prime/super prime in 2013 – although the average per acquired account value is closer to $200 - and falling to as low near Par or below for subprime). But prices will be generally based upon historic & current patterns in portfolio stability, ROA/ROE, portfolio seasoning, credit quality, active rates, average balances, whether there will be an ongoing agent program post-sale or not, the enterprise viability and brand loyalty of the cardholders involved, the geographic/economic region where card members are located, and the size of the portfolio, among other known factors sought by most successful card portfolio buyers. The permutations of all this is endless.
WHY FINANCIAL METRICS FOR CARDS ARE ON THE RISE AGAIN
“The economic recovery is improving; consumers are increasingly confident; issuers’ balance sheets and capital strengthening; card ROA’S/ROE’S rising; lower loan defaults rates and corresponding loan loss provisions; new marketing is advancing; less goodwill impairment needing restatement; proven bidder interest in doing deals as a result is rising as well; and climbing deal prices - all point to a more active market for card deals again in 2013,” notes R.K. Hammer/Card Knowledge Factory®.“
Based upon their 2013 econometric model, the R.K. Hammer forecast for the continued revival of the financial institution community, client discussions, and inquiries from potential card portfolio sellers, Hammer sees broad deal flow by enterprise segment this year (not counting many additional charged-off debt deals). “We are not nearly back to the frothy card deal flow of the late 1990’s and early 2000’s yet, adds Hammer, but it is nevertheless still improving Y/Y.”
HOW ACQUIRED PORTFOLIO CARD ACCOUNT COSTS COMPARE TO NEW SOLICITATION CPA COSTS
As a current example, a large scale card deal on the market is expected in the Hammer model to go for approximately $190 per account (on an “earnings-multiple basis” recently computed by Hammer), which incidentally is only $50 per account greater than the $140 CPA 2013 national average per account acquisition cost for a newly issued card via solicitation with no balances or repayment history on those new card accounts yet. Lots of seasoned card portfolio opportunities are out there for interested, bonafide buyers - for those who know where and how to look for card deals and how to price and negotiate.
FORECASTING FUTURE CARD DEAL FLOW
Future deal flow remains difficult to forecast in advance. “Yet, contained in our deal flow pattern estimate,“ Hammer comments, “the price factor impact list” contain the following: the R.K. Hammer econometric model for 2013, in addition to the foregoing, are sellers/advisors expectations realistic; are those expectations equal to or above their hurdle rate to in fact attempt a sale; will the current segment interest expansion continue to widen; will funding costs remain stable and low; will charge offs/defaults further moderate; and will card portfolio buyers still see the need to supplement their organic account growth with additional distribution channels like acquisitions. In addition to the ROA/ROE and portfolio characteristics, the answers to those issues on any given point in time and for any given portfolio will by and large help drive the deal price expected.”
For more complete card portfolio deal price information for 2013 on an expected “per-account” sale price basis (within each of the four main credit card business line segments described), go to cardknowledgefactory.com or rkhammer.com
More about R.K. Hammer& the Card Knowledge Factory®
R.K. Hammer has been a leading supplier of valuation/brokerage services for card portfolio sellers and agent card programs for over 23 years - plus as a senior executive officer over ten years before that with large card companies - participating/leading 149 such proposed card sale or purchase transactions, representing buyers and sellers. Their due diligence tools and techniques have been cited by leading issuers, processors, regulators and both Houses of Congress, among other regulatory agencies, and used by issuers from the U.S. and 50 countries abroad. Credit card veteran and company CEO Bob Hammer has been in the consumer payments space for over 33 years, and also serves as expert witness for those involved in valuation and contract disputes, and provides interim portfolio management for issuers in transition, in addition to representing card portfolio sellers. Card knowledge Factory research report metrics are all updated every January and throughout the year as needed individually.
For more detailed information on the company and its services, you may go to rkhammer.com or cardknowledgefactory.com