Banc One Corp. will not be as frequent an issuer of credit-card debt going forward, in part because its credit card receivables are no longer expected to grow in line with earlier forecasts following this year's subpar performance of its First USA credit card operation.
Tom Kelley, vice president at Banc One, said that the bank now expects its outstanding credit card debt to remain relatively flat until the end of the year.
Kelly said he had no specific knowledge and could not comment on when the bank may next come to market with an ABS issue. However, he did seem to indicate that the impact would be in the frequency of issues, not in the size of the offerings.
At the end of the second quarter, he said, Banc One had $61.3 billion in securitized credit card loans outstanding and an additional $8.1 billion of such loans on its books. He expects year-end numbers to be in the same range.
But, the bank's credit-card portfolio is now expected to fall $3 billion to $4 billion below earlier forecasts, he added. The revised outlook follows the announcement by Banc One that it was lowering its earnings estimates for full year 1999 to $3.60 to $3.65 a share, a reduction of 7% to 8% from market estimates.
The company attributed the revised outlook entirely to recent changes in growth and margin prospects for First USA, the corporation's credit card unit.
Richard Vague, chairman and CEO of First USA, said the problems with his unit involved "a significant acceleration in competition, including increased mail solicitation volumes and more aggressive introductory rate programs."
Coupled with tightened underwriting standards and higher account attrition, Vague said it has become more difficult to grow outstandings at targeted levels. To correct some of these problems, First USA said it was modifying the pricing structure of new solicitation programs and allocating additional marketing resources to improve customer retention.
Sources said much of the blame lies with First USA's use of low introductory, or "teaser," rates charged to new customers. Not only did these rates prove to be too low for First USA to make money, but they also had the side effect of introducing customers to rate shopping. Once an introductory rate reset to a higher level, many consumers transferred their balances to other credit card companies that were offering teaser rates for new customers.
Despite the bank's earnings problems, officials at both Standard & Poor's Ratings Group and Moody's Investors Service said they were maintaining their ratings on outstanding Banc One deals.
Edward Bankole of S&P said that the structure of the securitized transaction is designed to isolate periodic changes in condition of the issuer relative to the investor. The adverse publicity of weakened earnings outlook may affect volume of new paper, but he sees no longer term impact on its securitization pools.
One investment banking source said that despite the news circulating about Banc One there has not been any meaningful change in secondary market trading and spreads for the bank's asset-backed deals.
