It was an exciting week of news in credit cards, as five high-profile issuers made the headlines in one way or another. Top-tier card issuers American Express and MBNA America Bank announced a first-of-its kind alliance. Former top-tier issuer Capital One Financial came one step closer to being top-tier again, and subprime specialist CompuCredit Corp. closed a transaction backed by loans it acquired from Providian Financial.
The biggest news for investors was that Capital One had officially redeemed itself with its regulators by announcing that its memorandum of understanding (MOU) has been terminated. When the nonbinding agreement with regulators was announced in July 2002, the MOU had a wide-reaching impact on the entire credit card sector, which at the time, was trading at its all-time richest levels.
The announcement immediately sent ABS and unsecured debt spreads wider and the company's stock down 33%. Cap One steadily recovered in all three markets throughout 2003, thanks to increased disclosure and continued compliance with regulators. "The unsecured debt and credit default swaps are already benefiting from this news," one trader said last week. "The ABS market is still digesting it, but I expect tightening, particularly in subordinates and as you move further out on the curve."
The historic agreement between American Express and MBNA adds a significant distribution network for MBNA, but the impact on its future securitizations is unclear.
"MBNA will make the credit underwriting decisions and issue a credit card, using American Express as a distribution network in five countries," said Vernon Wright, MBNA vice chairman. As for whether MBNA will create a separate ABS trust, backed exclusively by its AmEx receivables, Wright added, "We have no comment on future issuance plans or product offerings."
Finally, CompuCredit Corp. closed a $475 million securitization of partially amortizing accounts it purchased from Providian. CompuCredit Credit Card Acquired Portfolio Business Trust, led solely by Merrill Lynch, priced a four-tranche senior-subordinated series 2004-One transaction at undisclosed levels.