U.S. Bancorp has agreed to buy a credit-card portfolio worth nearly $700 million from Bank of America. [1] The portfolio was part of Bank of America�s agent-issuing business and the move will help the bank to reduce its non-core assets to free up precious cash, especially after investors raised concerns about the quality of its asset base and the possible need for it to raise more capital. U.S. Bancorp is more than happy to pick up the portfolio, as it intends to grow its agent-issuing business with time.
See our complete analysis for U.S. Bancorp
We have a $30 price estimate for U.S. Bancorp�s stock and attribute the 14% premium to the current market price to the pessimistic outlook for banking stocks in general due to the economic slowdown and deteriorating European debt crisis.
The agent-issuing business of major retail banks issue credit cards, and some retail loans, on behalf of other financial institutions. It allows smaller financial institutions to outsource underwriting, servicing and marketing functions on credit cards and the loans.
The portfolio U.S. Bancorp is purchasing from Bank of America consists of small-business and consumer cards issued by the latter on behalf of 28 financial institutions. Bank of America is also offloading another portfolio worth $285 million to First Bankcard.
The addition will increase the size of U.S. Bancorp�s retail loans early next year. The bank had retail loans worth more than $64 billion on its balance sheet in 2010, a quarter of which constitutes of credit card loans (~$17 billion).
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