Citi Snaps Up Capital One’s Best Buy Credit Card Portfolio

February 20th, 2013 by Trefis Team
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Capital One Financial

Earlier this week, Capital One Financial (NYSE:COF) inked a deal with financial giant Citigroup (NYSE:C) to sell a portfolio of Best Buy (NYSE:BBY), private label (cards which can only be used at Best Buy) and co-branded (cards branded with Best Buy’s name which can be used anywhere) credit card accounts. [1] Although the price for which the $7 billion credit card portfolio will change hands hasn’t been disclosed, both parties claim that the deal was struck at book value with neither expecting any material profit or loss, as a result of the transaction which is expected to be completed by Q3 2013.

Capital One’s business with Best Buy was one of many that the company acquired as a part of its deal with HSBC (NYSE:HBC) last year, and is reportedly being divested because of “key differences in … strategic goals for the partnership.” [2] On the other hand, this is the first notable acquisition by Citigroup’s retail card business since the economic downturn of 2008. In fact the move marks a complete reversal of policy towards Citi Retail Services – Citigroup’s store-branded card business – which was earmarked for sale as part of Citi Holdings in 2011. [3]

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Capital One added credit card loans worth more than $28 billion to its balance sheet with the acquisition of HSBC’s U.S. credit card business (see Capital One Rejigs Recently Acquired HSBC Card Unit). The card loan portfolio came with a large number of private label deals and catapulted the bank to the third position in the private label card industry after GE (NYSE:GE) and Citigroup. But Capital One is looking to let go of some of the partnerships it acquired. It has divested several partner card portfolio’s over recent months, with the Best Buy deal being the largest divestment yet. The bank is expected to exit more such partnerships over subsequent quarters.

Meanwhile, Citigroup is keen on growing its Citi Retail Services business once again after having almost written it off after the recession. The business unit provides consumer and commercial credit card products, services, and retail solutions to some of the most notable retailers across North America, including The Home Depot, Macy’s, Sears, Shell, and ExxonMobil (NYSE:XOM). [4] The Best Buy card portfolio will add to the 90 million accounts the business currently boasts of.

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Notes:
  1. Capital One To Sell Best Buy Card Portfolio, Capital One Press Releases, Feb 19 2013 [↩]
  2. Capital One to Sell Best Buy Card Portfolio to Citigroup, The Wall Street Journal, Feb 19 2013 [↩]
  3. Citigroup Will Take Over Best Buy Cards From Capital One, Bloomberg, Feb 19 2013 [↩]
  4. Citi Announces U.S. Credit Card Agreement with Best Buy, Citi Press Releases, Feb 19 2013 [↩]