Bank Sells Securities Package Made of Debts on Credit Cards

Article excerpt

NEW YORK - The trend toward packaging assets as securities and selling them off to investors took a new twist this past week.

A big bank sold $50 million of securities made up of payments customers owe on their credit card balances.

The securities are called Certificates for Amortizing Revolving Debts (CARDS). They represent an interest in a pool of Visa and MasterCard credit card accounts from around the country offered through Bank One of Columbus, Ohio.

The Salomon Brothers Inc. investment firm assisted in developing the product and found the buyers, which were large institutional investors.

Debts people owe on credit card accounts are tallied as assets on an issuer's books because they represent money due. By selling off some of its credit card receivables, Bank One, the flagship bankof the parent holding company Banc One Corp., was able to free reserves that would have had to be held against the receivables.

Michael Van Buskirk, a vice president at Bank One, said the process provides a new method for the bank to finance additional business.

The certificates carry an interest rate of 8.35 percent. Investors will receive interest payments for the first 18 months, duringhich time principal payments by the credit card holders will be reinvested in more receivables.

That way the the balance in the pool will be kept at a constant amount.

From the 19th month, the investors will start receiving the principal payments while still getting the interest. …