Capital One Financial Corp.
) has signed an agreement to vend certain private label and
co-branded credit card accounts to
). These card portfolios - worth about $7 billion - are related
to electronics retailer
Best Buy Co Inc.
BEST BUY (BBY): Free Stock Analysis Report
CITIGROUP INC (C): Free Stock Analysis Report
CAPITAL ONE FIN (COF): Free Stock Analysis
HSBC HOLDINGS (HBC): Free Stock Analysis
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Capital One stated that the agreement, still subject to customary
closing conditions, is expected to be completed in the third
quarter of 2013. Though the financial terms of the transaction
were not disclosed, the company anticipates the deal to have a
neutral impact on its earnings. Further, Capital One and Best Buy
have also agreed to terminate the contractual credit card
relationship, which these companies share.
For Citigroup, the addition of Best Buy's leading retail
franchise and premium card portfolio to Citigroup Retail Services
will significantly enhance its position in the U.S. market. Best
Buy's leadership position in consumer electronics, combined with
Citigroup's expertise, would further help in providing better
service to the customers.
Further, Capital One did not reveal any reason for the sale of
the card portfolio. These private label cards can only be used at
a single retailer, while co-branded credit cards can be used
anywhere. The company had acquired a total of 23 such retail
partnerships when it closed a deal to buy
HSBC Holdings plc
) U.S. credit card portfolio in 2012.
Capital One entered the store-branded credit card market in Jan
2011 when it acquired Hudson's Bay Company credit card portfolio
and related assets from GE Capital Retail Finance. This was
followed by the buyout of another private-label credit card
portfolio from Kohl's Department Stores in Apr 2011.
However, Capital One's decision to sell off the abovementioned
portfolio has come as a surprise. This is expected to pose a
challenge to the company's already sluggish revenue growth given
the reduced demand for credit cards.
Currently, Capital One retains a Zacks Rank #5 (Strong Sell).