Fleet to pay $1.3b for credit card unit
Circuit City deal called chance to get accounts at discount
FleetBoston Financial Corp. bought a credit card division yesterday from Circuit City Stores Inc. that includes 550,000 cardholders and $1.5 billion worth of revolving debt.
Fleet, New England's biggest bank and the nation's ninth-largest card issuer, agreed to pay $1.3 billion for the package of Circuit City receivables -- money owed to the company for credit card purchases. Under terms of the agreement, Circuit City will continue to manage the portfolio until May 31, 2004.
Fleet spokesman James Mahoney said the bank also looks at it as a chance to increase its traditional banking business, since more than 100,000 of the 550,000 cardholders are in its home base of the Northeast.
Primarily, though, it was a chance to buy the accounts at a discount, Mahoney said.
"The basic point on this is that it was an opportunistic transaction that presented itself," he said. Fleet executive vice president Bradford Warner, in a statement, called it "essentially a financial transaction."
Nancy Bush, a bank analyst with NAB Research, , said she can't remember a time when a company was so blatant about the fact that there was no larger strategic theme or customer service advantages to an acquisition deal.
"The deal is not, in and of itself, terribly significant," she said. "But the way they announced it is interesting, saying this is a financial transaction, period."
The $1.5 billion portfolio consists of Visa and MasterCard accounts that don't carry Circuit City's name on them, and which have been plagued by larger-than-normal customer defaults. Circuit City said last week its card business had a pretax loss of $142.3 million in the third quarter -- pushing the company to a $124.2 million loss overall for the period.
The retailer said yesterday it intends to keep another portfolio of cards that carry the Circuit City name. That portfolio is roughly equal in size to the loans Fleet will assume.
Mahoney said Fleet should have more luck with the package than Circuit City.
"We see this as an opportunity to derive greater value out of the portfolio than Circuit City was able to manage," he said. "We believe we can generate better returns because of our technology and experience."
The acquisition will be the first major one for Fleet's credit card division since 1998, when it bought the consumer card unit of Advanta Corp. for $532 million in assumed debt. A judge later ruled Advanta should repay Fleet $29.4 million related to disagreements over terms of the deal.
During its own third-quarter earnings announcement last week, Fleet reported that credit card revenue was down slightly. Excluding the sale of its own receivables in both quarters, however, showed that the business actually increased revenue during the quarter, the bank said.
Fleet stock lost 42 cents, or 1.3 percent, to close at $31.99 on the New York Stock Exchange. Circuit City shares dropped 10 cents, or 1.1 percent, to end the day at $9.44 on the exchange.
Scott Bernard Nelson can be reached at nelson@globe.com.
