Credit card portfolio sales this year have snapped back to a pace last seen before the recession took hold. Their prices are also rising.

So far this year 36 credit card portfolios have changed hands, more than triple last year's total number of 10 deals, according to Robert Hammer, CEO of RK Hammer Associates, who notes that more issuers are opting to take their own card operations back in-house as credit performance improves.

There were 12 credit card portfolio sales in 2010 and 14 in 2009, Hammer says.

KeyBank's decision to buy back its $725 million credit card portfolio, announced Aug. 2, was the latest in a series of such deals. The KeyCorp unit will absorb 400,000 consumer and business credit card accounts that Elan Financial Services owns. Terms of the deal were not disclosed. 

Competition for credit card portfolios has been steadily rising over the past two years as Bank of America Corp. began unloading portfolios it handled for banks on an agent basis, and certain regional banks including Regions Financial Corp. and Sovereign Bank brought their credit card operations back under their own roofs. 

The average premium paid for credit card portfolios this year is 16.07%, up from 14.4% last year, based on industry estimates, Hammer says.

But not all banks are rushing to begin issuing their own cards again after outsourcing years ago, he says.

"It's mostly certain regional and super-regional banks that sold their card portfolios in the last 1990s to raise capital who are considering taking their own card brands back," Hammer says. "They issued most of their own cards originally and it makes more sense to market them now alongside their other products."

More mid-size banks may take a look at resuming self-issuance of their credit cards as contracts with third-party issuers come up for renewal, he says.

"Lots of banks are on the fence now, weighing whether the price is right for them to take their portfolio back in-house," Hammer says.

Since the recession, credit performance has improved dramatically as issuers closed unprofitable accounts and restricted underwriting to consumers with high credit scores, resulting in record-low industry charge-off rates

"With these portfolios all cleaned up and performing well, the original issuers are interested in taking them back and coordinating them with their other card products," Hammer says.

But most large issuers are not looking to buy smaller portfolios as they become available, and the appetite for purchasing large card portfolios is limited, he says.

Capital One Financial Corp. stood out last year when it announced plans to purchase the $30 billion U.S. card portfolio HSBC Holdings PLC built over several years. That portfolio consists of private-label and cobranded cards. 

Target Corp. earlier this year was forced to take its card portfolio off the market because of a lack of suitable offers. 

Credit card issuers in the wake of the recession became more conservative in their underwriting policies as more consumers paid down balances, resulting in a soft demand for credit card borrowing. 

As a result, it has become tougher to eke out profits through consumer credit cards, Hammer says.

"It will take awhile for credit card borrowing to resume and it may not reach the levels we saw several years go, but issuers that are smart about marketing cards as part of a package and using rewards programs cleverly see opportunity," he says.

Subscribe Now

Authoritative analysis and perspective for every segment of the payments industry

14-Day Free Trial

Authoritative analysis and perspective for every segment of the industry