Reeling from a number of miscues during the past twelve months Advanta reached a definitive agreement yesterday to sell the bulk of its $10.5 billion credit card portfolio to Fleet Financial Group. The agreement will produce an after-tax gain for Advanta of $500 million. Advanta estimated Tuesday the total value of the transaction to be $1.3 billion. The purchase will move Fleet into the “Top Ten” of bank credit card issuers. According to third quarter data gathered by CardData, the combined portfolio will have total receivables of $12.6 billion. Fleet will therefore become the nation’s ninth largest issuer, based on outstandings, surpassing #10 Optima. Fleet’s customer base will grow from 2.3 million to about 8.3 million accounts.
Advanta’s meltdown began last fall following the launch of its partnership program with American Express involving the ‘Rewards Accelerator’ VISA and MasterCard which linked AmEx’s rewards program to a VISA and MasterCard. Advanta became embroiled in trademark litigation with VISA and MasterCard over the product and eventually, after challenging the card associations, agreed to terminate the program. At the time Advanta’s portfolio peaked at $12.9 billion. During the fourth quarter the company lost key executives followed by a $20 million operating loss in the first quarter of this year. In a effort to regain profitability Advanta engaged in an portfolio-wide repricing which boosted average cardholder interest rates by 300 basis points. Advanta also boosted fees, introducing account closing and dormancy fees. Since the peak at the end of the third quarter last year Advanta’s portfolio dropped to $12.7 billion (4Q96), $12.2 billion (1Q97), $11.2 billion (2Q97), to $10.5 billion (3Q97) according to RAM’s CardData. The shrinkage has been largely attributed to tighter underwriting and higher attrition from the repricing efforts.
Fleet said yesterday management of the combined Fleet and Advanta portfolio will initially report to Fleet vice chairman H. Jay Sarles. Mr. Sarles’ first assignment is to recruit a CEO for its new credit card operations. Approximately 1900 Advanta employees will join Fleet.Details