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CAPITAL MARKETS

Monoline credit card platforms: The course of consolidation

At the start of the decade, the credit card sector was characterized by a large number of monoline non-investment-grade issuers, including some that were just sub-prime platforms.

The credit card trick


Now the sector is dominated by relatively high-rated players, largely with double-A and single-A ratings. These platforms are generally much bigger than their predecessors of yesteryear and, more often than not, part of large universal banking operations.

There were four large sub-prime issuers – NextBank, First Consumers, Providian and Metris. Sub-prime card platforms suffered from high portfolio losses and subsequent intervention by the regulator, the Federal Deposit Insurance Corporation. Of these, only Providian and Metris continued in business until they were taken over by large banks with diverse credit card portfolios, these being Washington Mutual (WaMu) and HSBC respectively. NextBank and First Consumer did not survive the principal write-downs that affected their portfolios.

Nearly half of WaMu’s and one-third of HSBC’s card ABS portfolios are sub-prime, according to Standard & Poor’s. But Deutsche Bank’s Weaver points out that these are just 4.5% of credit card ABS outstanding. In the last two years there has been a substantial amount of consolidation, with Banc One/Circuit City acquired by JPMorgan Chase, Federated Department Stores and acquisitions of the above mentioned sub-prime platforms.

Monoline credit card platforms are now nearly extinct.


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