(This article was originally published Tuesday.)
By Andrew R. Johnson
Barclays PLC (BCS, BARC.LN) is preparing its first bond deal
backed by U.S. credit-card loans as it aims to grow lending and
lower its funding costs in the U.S. market.
The British bank wants to claim a bigger share of the U.S.
credit-card market, where it has grown to be a mid-sized player
since entering the business in 2004.
"We're growing from doing more business with our existing
customers and are seeing ... a significant lift in our partner
portfolios," Amer Sajed, chief executive officer of Barclaycard US,
the bank's U.S. credit-card arm, said in an interview at the unit's
Wilmington, Del., headquarters on Friday.
Competition has stiffened in recent years as lenders have
refocused their efforts on adding more customers after largely
retrenching from marketing during the financial crisis, when
borrowers fell behind on payments, resulting in billions of dollars
of loan losses for the industry. They continue to face challenges,
though, as more customers pay down their balances each month and
cautiously take on new debt, making it difficult for credit-card
issuers to grow revenue.
"If you look at the loan growth for the industry, it's pretty
much flat," said Donald Fandetti, an analyst with Citigroup Inc.
(C), adding that Barclays will be hard-pressed to post significant
gains because the industry is dominated by a small handful of
players.
Barclays largely focuses on co-brand card partnerships with
retailers and airlines including Apple Inc. (AAPL), US Airways
Group Inc. (LCC) and L.L. Bean Inc. It sees a window to grow as
some big lenders, such as Bank of America Corp. (BAC), look to shed
assets and other partnership deals come up for bidding.
To that end, the company wants to diversify its funding sources
for card loans, which has primarily consisted of intercompany
funding provided by its British parent.
In a Securities and Exchange Commission filing made Tuesday by
Dryrock Issuance Trust, the funding vehicle the company formed for
securitizing loans originated by Barclays Bank of Delaware, it said
local funding sources are "important for the bank given intragroup
lending restriction limits imposed on" Barclays Bank PLC "by
regulators" as well as encouragement by the Federal Deposit
Insurance Corp. to diversify funding.
In May, Barclays launched an online bank in the U.S. that
currently offers savings accounts and certificates of deposit,
joining credit-card issuers American Express Co. (AXP) and Discover
Financial Services (DFS), which have turned to deposits to
partially fund their loans. The bank is nearing $1 billion in
deposits and is aiming to reach $3 billion by the end of next year,
Mr. Sajed said.
Barclays is now throwing securitization into the funding mix.
While its British arm has long relied on asset-backed funding to
support its operations, the company's upcoming deal will be the
first backed by its U.S. credit-card loans.
The company planned to begin investor road shows for its first
deal this week and issue its first deal this quarter, Mr. Sajed
said.
"It's part of making sure we have diverse, broad and, frankly,
inexpensive cost of funds for our business," Mr. Sajed said. "If I
want to really get to a large step-change growth in the U.S., I
don't want to rely on the mothership for funding my growth. I want
to be able to fund my own growth."
The bank is planning to issue up to $3 billion of credit card
asset-backed securities, according to a registration statement
filed with the Securities and Exchange Commission by the trust in
August.
The move comes as credit-card ABS issuance has surged this year
after falling off a cliff as a result of the financial crisis and
accounting rule changes requiring lenders to bring certain
securitized loans held off their balance sheets back onto their
books.
Issuers including Discover, American Express and J.P. Morgan
Chase & Co. (JPM) have taken advantage of low borrowing costs
and insatiable investor demand with new deals, helping drive $31.93
billion of new issuance year to date, according to a Sept. 28
research note from Bank of America Merrill Lynch.
For all of 2011, there was $17.29 billion of new deal issuance,
according to the report.
Part of what has driven the volume this year is the fact that
many existing securities are maturing, prompting lenders to
"replenish," said Jeffrey Hibbs, assistant vice president for
Moody's Investors Service.
While fallout from the Libor-rigging scandal that has embroiled
Barclays resulted in management upheaval this summer, Mr. Sajed
said such issues have not affected his unit's U.S. growth plans.
Libor is the London Interbank Offered Rate and partly determines
interest rates on many types of loans.
Barclays entered the U.S. credit-card market in 2004 after
buying Juniper Financial Corp. from Canadian Imperial Bank of
Commerce (CM, CM.T), or CIBC. At the time, the unit had about $1.4
billion in loans, and since then Barclays has grown the portfolio
to $12.7 billion, making it the 10th-largest U.S. credit-card
issuer, according to The Nilson Report, a payments-industry
newsletter.
By comparison, Chase, the largest credit-card issuer, had
$123.58 billion in outstanding loans as of June 30, and Bank of
America, the second-largest player, had $105.11 billion in loans.
Chase and Bank of America are among the six largest U.S.
credit-card issuers closely followed by analysts and who
collectively account for two-thirds of the market.
Mr. Sajed said he "would be bummed if we're not seventh in the
next few years," but acknowledges growing from its current base
will be difficult in a period of tepid loan growth. The
seventh-largest issuer is Wells Fargo & Co. (WFC), which had
$31.31 billion in loans as of mid-year.
The company is eyeing acquisitions, with portfolios ranging from
$500 million to $2 billion in loans in its "sweet spot."
In February, Barclays announced it acquired a $1.3 billion
portfolio of Sallie Mae-branded credit-card loans from a unit of
Bank of America that issues cards for smaller banks.
Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com
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