GE Capital's Toys "R" Us Deal Shows Cards M&A Is Growing Up Fast

American Banker, February 1, 2012 | Go to article overview

GE Capital's Toys "R" Us Deal Shows Cards M&A Is Growing Up Fast


Byline: Jackie Stewart

GE Capital's deal to purchase the card assets of Toys "R" Us from JPMorgan Chase & Co.? Get used to it.

"Those activities are going to be way up from the last five years," says Bob Hammer, founder and chief executive of card industry advisory R.K. Hammer in Thousand Oaks, Calif. "Given the Street chatter, it's going to be a more active M&A year for credit cards, both private label and co-branded."

GE Capital's retail bank said Tuesday that it had signed a deal to provide the consumer credit card program, including private-label and co-branded cards, in the U.S. and Puerto Rico for retailer Toys "R" Us. GE Capital, the finance arm of General Electric Co., also said that it would acquire roughly $900 million in existing card program assets from JPMorgan Chase.

GE Capital and JPMorgan Chase declined to reveal the premium that GE Capital paid for the assets. The deal is expected to close in the second quarter, and GE Capital will relaunch the card program in June.

R.K. Hammer expects that 40 portfolios containing $45 billion of assets will be sold in 2012, at an average premium of about 16.4% above face value. Those figures include Capital One Financial Corp.'s deal for HSBC Bank USA's $30 billion credit card business.

If that prediction proves true, M&A card activity would return to pre-recession levels and top by a long shot the 10 deals seen in 2011 involving $5.4 billion of assets; the average premium last year was 14.4%. An improving economy and the shifting strategies of companies will fuel deals, Hammer says.

GE Capital is a prime example of a business that has changed gears. In 2007, it decided to sell its retail consumer finance business. However, it could not find a buyer and has since recommitted to the business. In October 2010, GE Capital acquired $1.6 billion of store-card receivables from Citigroup Inc.

"Credit cards are back in the core of GE Capital, and it is a business that GE Capital will grow and invest in," Margaret Keane, chief executive of GE Capital's retail finance business, said in an interview. …

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