Credit card policy trends have "been toward higher capital requirements, … lower margins because of increased competition, and now, more recently, a lot of attention from regulators and legislators," Richard Vague, a member of the dissident slate that activist shareholder William Ackman has nominated to Target Corp.'s board, said during a presentation Monday. In December, regulators adopted sweeping restrictions on credit card practices that go into effect in July 2010. Legislation moving through Congress with the backing of President Obama could toughen the new rules by giving them the force of law and advancing their implementation. "They're going to decrease the flexibility in that business," said Vague, who co-founded credit card companies First USA (now a part of JPMorgan Chase & Co.) and Juniper Financial Corp. (now a part of Barclays PLC). "It's not the place to be creating wealth for shareholders that it once was." Ackman, whose Pershing Square Capital Management LP owns a 3.3% stake in Target and options that could raise the stake to 7.8%, pressed his argument that the Minneapolis-based retailer should fully unload the credit and funding risk for its credit card receivables through a partnership with a large financial institution. (Target sold a position in its portfolio to Chase last year.) But the current environment has made the prospects for a deal uncertain, Ackman said. It is "not clear what kind of credit partnership transaction can be devised," he said. Vague concurred, noting that now may not be the time to do something on credit cards. "I don't have the particulars of Target's situation," he said. "But you would like a situation where margins or credit trends are more stable, where the universe of buyers has increased because the capital structure of the potential buyers is in better shape." In a letter to CardLine sister publication American Banker Monday, Douglas Scovanner, Target chief financial officer, wrote that he firmly believes "Target will not quit the card business" (CardLine, 5/11). He also wrote that "we continue to aspire to reduce our current minority investment in this pool of assets."

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