Through the purchase of credit card giant MBNA Corp., Bank of America Corp. last week became the latest - and largest - in a string of national banks that have acquired U.S. credit card companies. While more such deals are widely expected to follow, some analysts are not predicting a dramatic slowdown in issuance of credit card-backed securities. "I'm looking for issuance to be pretty flat to what we saw in 2005," said Juliet Jones, an associate director at Barclay's Capital. Jones is projecting $60 billion of credit card ABS issuance this year, compared with last year's $58 billion. A Bank of America spokesman did not return a request for comment by press time.
It is true that some of the few remaining monolines have been absorbed into financially stronger, more diverse franchises, leaving these issuers potentially less reliant on securitization as a funding source, Jones said. The credit card ABS sector has been wounded by a combination of M&A activity and a lack of receivables growth, due in part to the appeal of home equity loan and line of credit products. But while monoline credit card issuers have slashed their cost of funds under more credit worthy parent companies, issuance will not necessarily dry up.
"In the case of MBNA, I don't think there will be an immediate drop-off in issuance," Jones said, "I don't see them completely withdrawing from the market in the very near term." What is more, a sizable increase expected this year in maturing deals could lead to more refinancing volume, said Michael Dean, a managing director at Fitch Ratings. Dean is expecting some $70 billion to mature this year, compared with $59 billion last year. "The volume of maturities coming through should help offset some of the slowdown because of Reg AB and some of the consolidation we saw last year, as well as some of the entities not securitizing as much - namely MBNA," Dean said.
BofA announced last July plans to acquire MBNA, which it did last week in a $34.2 billion deal following regulatory and shareholder approval. The deal made Charlotte, N.C.-based BofA the largest U.S. credit card issuer, with roughly $140 billion in outstanding credit card balances.
The credit card industry has been trending toward consolidation for the past 10 years, with that trend shifting into overdrive over the last year (see ASR 8/8/05). HSBC Finance Corp.'s acquired credit card issuer The Metris Companies last August, and Washington Mutual Inc. acquired Providian Financial Corp. in June, around the same time that Citigroup Inc. acquired the portfolio of Federated Department Stores. A little less than a month later, Bank of America announced its acquisition of MBNA Corp. In addition, many view Capital One Financial and American Express as targets for additional M&A activity. Still, Dean pointed out, both companies maintain relatively high corporate credit ratings, making consolidation less of a means toward achieving lower credit enhancement requirements.
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