Target Corp. says it has reached an agreement to sell its consumer credit card portfolio to TD Bank Group.
TD agreed to buy the portfolio for an amount representing the gross value of the outstanding receivables when the sale closes. Currently, the receivables have a gross value of roughly $5.9 billion, Target says. The companies expect to close the sale in the first half of 2013, pending regulatory approval and other closing conditions.
TD also agreed to underwrite, fund and own future U.S. Target Credit Card and Target Visa receivables under a seven-year agreement. TD will handle the risk management and compliance for the accounts, whereas Target will handle account servicing.
The companies plan to share the profits generated by the card portfolios. Target will have the “more substantial interest,” and it will cover most of the operating costs, the companies said in a press release Oct. 23.
"Target is very pleased to have reached this agreement with TD which is the result of extensive efforts by teams at both companies," said Gregg Steinhafel, chairman, president and chief executive officer of Target, said in a press release. "This transaction achieves all of Target’s strategic and financial goals for a portfolio sale. We look forward to working with this premier global financial institution to continue Target’s long history of innovation in our guest-focused financial services strategy."
Target, which has tried to sell its card assets for years, took its portfolio off the market in January. By August, however, it said it was in talks with several interested buyers.
At the time, this news was considered somewhat overdue since the market for card portfolios was improving — by the start of August, 36 credit card portfolios had changed hands, compared to 10 for the entirety of 2011, according to RK Hammer Associates.
For TD, which late last year bought the $8.6 billion credit card portfolio of MBNA Canada from Bank of America, the agreement "will significantly expand our presence in the North American credit card business," said Ed Clark, group president and CEO of TD Bank Group, in a press release. "We're excited to be working with Target's strong team and leading retail brand. This asset purchase aligns perfectly with our risk profile and strategy, and will contribute to achieving our stated adjusted earnings target of $1.6 billion from our U.S…segment in 2013."
Target’s third-quarter earnings will reflect a pre-tax gain of roughly $150 million due to a change of the accounting treatment of the receivables, it said. When the deal closes, Target expects a pre-tax gain of $350 million to $450 million.