Capital One Selling Card Portfolios - Analyst Blog

Capital One Financial Corp. (COF) has signed an agreement to vend certain private label and co-branded credit card accounts to Citigroup, Inc. (C). These card portfolios – worth about $7 billion – are related to electronics retailer Best Buy Co Inc. (BBY).

Capital One stated that the agreement, still subject to customary closing conditions, is expected to be completed in the third quarter of 2013. Though the financial terms of the transaction were not disclosed, the company anticipates the deal to have a neutral impact on its earnings. Further, Capital One and Best Buy have also agreed to terminate the contractual credit card relationship, which these companies share.

For Citigroup, the addition of Best Buy’s leading retail franchise and premium card portfolio to Citigroup Retail Services will significantly enhance its position in the U.S. market. Best Buy’s leadership position in consumer electronics, combined with Citigroup’s expertise, would further help in providing better service to the customers.

Further, Capital One did not reveal any reason for the sale of the card portfolio. These private label cards can only be used at a single retailer, while co-branded credit cards can be used anywhere. The company had acquired a total of 23 such retail partnerships when it closed a deal to buy HSBC Holdings plc’s (HBC) U.S. credit card portfolio in 2012.

Capital One entered the store-branded credit card market in Jan 2011 when it acquired Hudson’s Bay Company credit card portfolio and related assets from GE Capital Retail Finance. This was followed by the buyout of another private-label credit card portfolio from Kohl’s Department Stores in Apr 2011.

However, Capital One’s decision to sell off the abovementioned portfolio has come as a surprise. This is expected to pose a challenge to the company’s already sluggish revenue growth given the reduced demand for credit cards.

Currently, Capital One retains a Zacks Rank #5 (Strong Sell).

BEST BUY (BBY): Free Stock Analysis Report

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CAPITAL ONE FIN (COF): Free Stock Analysis Report

HSBC HOLDINGS (HBC): Free Stock Analysis Report

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