The consolidation trend in the card industry emerged again late this spring following a fallow period as large institutions took a breather to digest their purchases.
  In June, Washington Mutual Inc., the nation's largest mortgage lender, reported it would pay $6.45 billion for Providian Financial Corp., the San Francisco-based issuer with $18.1 billion in managed receivables. That acquisition plan followed an announcement a week earlier by Citigroup Inc. of an agreement to purchase the credit card portfolios of Federated Department Stores and May Department Stores.
  Experts contend it generally is cheaper to acquire market share in the issuing arena than to build a new portfolio. Greater volume typically means savings, while credit card portfolios help issuers generate recurring fee revenue from interest on unpaid balances, late payments and other charges.
  Washington Mutual, known as WAMU, has been seeking entry into the credit card market for some time, looking to add it to its mortgage, commercial-lending and retail-banking divisions, Kerry Killinger, WAMU chairman and chief executive, told analysts. WAMU reported assets of nearly $320 billion last year.
  The combined institution immediately would become a major card force, marrying Providian's 9.4 million credit cards with WAMU's portfolio of 9.2 million debit cards, said Killinger. Seattle-based WAMU will expand the use of the TS 2 processing system from Total System Services Inc. after the merger is completed, executives said.
  WAMU was the third-largest debit card issuer in 2004, according to Cards&Payments sister publication ATM&Debit News. The Card Industry Directory 16th Edition ranked Providian as the 11th-largest credit card issuer last year.
  Providian will remain in San Francisco with Joseph W. Saunders staying on as chairman and chief executive. Saunders, who will report to Steve Rotella, WAMU's president and chief executive, said there were no plans to trim executive ranks or to close any facilities.
  Providian will gain access to WAMU's 1,968 retail-banking outlets to market its cards. Providian has long used direct mail to acquire customers.
  Additionally, Providian likely will see its cost of funds decrease as it joins the solid WAMU. Regulators require monoline issuer Providian to hold as much as $4.8 billion in liquid secured assets, but WAMU does not face such strict requirements, said Thomas W. Casey, WAMU's executive vice president and chief financial officer.
  "We'll be able to redeploy that capital at significantly higher yields," Casey told analysts. Standard & Poor's and Fitch Rating Service both announced after the takeover announcement they would review their "junk" rating status of Providian's debt.
  Providian imploded in 2001, brought down by aggressive marketing to subprime consumers that failed to pay their bills. In November 2001 Saunders and marketing expert Warren Wilcox were brought in from Fleet Credit Card Services to turn the issuer around. They reduced Providian's subprime exposure and targeted established consumers.
  In the first quarter of 2005 Providian reported a managed net credit loss rate of 8.43%, down from 13.88% in the first quarter of 2004. Total net revenues in the first quarter were $525.1 million compared with $498.5 million in first quarter of 2004. The deal is expected to close in the fourth quarter and requires shareholder and regulatory approval.
  In May, Citigroup announced plans to buy the $6.6 billion credit card portfolios of the Federated and May department stores in a multipart acquisition. The portfolios have a total of 17 million active accounts and are comprised of private-label and cobranded Visa cards.
  Federated and May announced in February plans to merge in an $11 billion deal to be completed in the third quarter.
  Citi and its retail card division Citi Commerce Solutions will purchase Federated's $4.4 billion portfolio in two phases by May 2006. Citi also will purchase May's $2.2 billion card portfolio within a year of the completion of the merger of the two retailers.
  Citi will pay a reported 11.5% premium for each of the portfolios. Federated says it expects to receive $4.5 billion in after-tax proceeds from the deal.
  Citigroup agreed to continue to issue the cards in the retailers' names. Federated's brands include Macy's and Bloomingdales. May owns Filenes and Lord & Taylor.
  The two large mergers follow the 2003 acquisition of FleetBoston Financial Corp. by Bank of America Corp. and J.P. Morgan Chase & Co.'s purchase of Bank One Corp.
  This March Capital One Financial Corp. expanded into retail banking with its $5.3 billion purchase of the Louisiana bank Hibernia Corp.
  (c) 2005 Cards & Payments and SourceMedia, Inc. All Rights Reserved.
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