First Maryland Bancorp said yesterday that it is selling its $623 million credit card portfolio to Bank of America N.A. for an undisclosed price, and that it will exit the credit card issuing business altogether.
Stiff competition, slim profit margins and high credit card delinquencies are the main factors behind the decision to sell, said Richard H. White, president and chief executive of First Omni Bank N.A., First Maryland's Delaware-based credit card subsidiary.
"Profitability for all of us [credit card issuers] has been under a good deal of pressure over the past couple of years," White said. "We felt that strategically that we would be better off recognizing the value in that portfolio rather than attempting to continue to compete with an industry that is very, very large in scale."
White declined to reveal the number of employees who could lose jobs at First Omni and Dauphin Deposit Bank, a subsidiary bank in Pennsylvania, when the deal closes early next year. He said First Maryland, a subsidiary of Dublin-based Allied Irish Banks PLC, will continue to retain the First Omni charter, and employees will work until the transaction is completed.
"After that we will see," White said.
The agreement is subject to regulatory approval.
After the sale, Baltimore-based First Maryland, the $17.3 billion-asset parent of First National Bank of Maryland, will continue to offer credit cards to its customers, but it will no longer service the accounts under the arrangement. That will be left up to San Francisco-based Bank of America, which will issue the credit cards and collect the payments.
"We felt it was a good opportunity for us," said Betty Riess, a spokeswoman with Bank of America. "We will gain economies of scale. We feel there are great marketing opportunities."
Riess said the credit cards will be marketed through First Maryland branches, and that revenues generated will be shared between the companies.
She said the credit cards will be serviced in Phoenix, where Bank of America has a large operation.
Bank of America will pick up a total of 266,104 active credit card accounts from First Maryland and Dauphin Deposit.
Bank of America, which is credited with pioneering the bank card business in the 1960s, has 10 million credit card accounts. Its parent is BankAmerica Corp., the country's fourth largest banking company.
Many experts believe that only companies with size can survive in the credit card business, where competition for customers is ruthless, and delinquencies have been high.
First Maryland's portfolio is tiny compared with giants such as Citicorp and MBNA Corp., which have billions of credit card loans on their books.
The tough conditions have forced big banks and finance companies like Bank of New York and Advanta Corp. to sell their multibillion-dollar portfolios.
AT&T; Corp. recently put its Universal credit card business on the block.
"You have got to have the economies of scale, which means being able to offer the marketing systems," said Jon Holtaway, senior vice president with Danielson Associates Inc., a Rockville-based bank and thrift consulting firm.
Holtaway said it is a good time to sell because the large credit card companies are "flush with earnings and capital."
"This is the time," he said. "People are looking for scale."
First Maryland said it sold the portfolio at a premium to book value, but neither White nor a spokeswoman would reveal the price.
At its peak, First Maryland's credit card portfolio had $1.1 billion in receivables. White said delinquencies are running at about 5 percent -- about the industry average.
Last August, First Maryland sold $360 million in credit card loans issued under the Bell Atlantic name to Chase Manhattan Corp.
First Maryland considered expanding the credit card business when Bell Atlantic merged with Nynex Corp., but it decided to sell the portfolio to Chase instead.
Since then, the bank has decided to quit the business.
"Margins have been under pressure," White said. "We felt they would continue to be under pressure. We looked at that and we looked at the size issue."
Pub Date: 12/12/97