People’s Bank has created a surplus of capital for itself by selling its credit card business to The Royal Bank of Scotland Group, parent company of Citizens Bank.
With plans to expand beyond the state’s borders, People’s Bank is selling off its credit card business to an international outfit, creating a surplus of capital.
Bridgeport-based People’s, a $12 billion financial services company and the largest independent state-chartered institution in Connecticut, announced Tuesday an agreement to sell the business – a move that will include the transfer of its related Bridgeport credit card operations and staff – to The Royal Bank of Scotland Group, parent company of Citizens Bank.
People’s will obtain a 15.5 percent premium on the credit card receivables sold in the transaction. As of Dec. 31, 2003, the total amount of People’s managed credit card receivables was approximately $2.3 billion.
“The strategic decision to exit the credit card business strengthens People’s and better enables us to focus on our core retail and commercial banking businesses where we have proven competencies and demonstrated competitive advantages,” said John A. Klein, People’s president and chief executive officer.
“We believe that the time is right to transfer the business to an institution that can optimize its performance and grow it to a multiple of its current size,” Klein added. “RBS, with one of the largest credit card platforms in Europe, is such an institution.
“People’s is Connecticut’s bank and has been for 162 years. We will continue our leadership and commitment to the state and its communities – especially in our hometown. At the same time, we welcome RBS as a major new corporate citizen contributing to Bridgeport’s economic development.”
‘Contiguous Markets’
Much of the extra capital gained by the bank will be used to expand the bank’s franchise. Growth in Connecticut is expected, as is growth outside of state borders into Massachusetts and New York. Klein said the bank would expand into regions contiguous to its footprint. He also noted that outer-state expansion would be allowed under the bank’s current state charter and that a federal charter would not be necessary.
“Our first look would be at contiguous markets,” said Klein. “We are going to try to choose wisely as we move forward.” He noted that as a mutual holding company, the bank has “the same acquisition abilities as anyone else.”
Klein referred to RBS as the “card leader” in the United Kingdom, adding that he “couldn’t be more excited with what this means for them and for our folks. [RBS chose] one of the best credit card platforms in the country from which to launch their U.S. product. We very much like what we see with the RBS team and we’re excited to be working with them as we transition in the months ahead,” he said.
Because People’s will now be originating cards on behalf of RBS, the bank will see a fee income that Phil Sherringham, executive vice president, said would result in a “seven-figure-plus revenue” over the first year.
“We have an attractive arrangement with [RBS] on a joint marketing basis to originate cards in our customer base,” he said.
One of the key elements of the plan includes RBS retaining the employee base in Bridgeport.
“We are particularly pleased that RBS will maintain our credit card business employment base in Bridgeport,” Klein said. “The ability to preserve and grow the business was certainly an important factor in our decision to sell the business to RBS.”
He added, “We deeply appreciate the efforts of our employees to strengthen the credit card business. Over the past two years, our credit card team has worked hard to restore the business to profitability by significantly improving asset quality and our overall effectiveness. We’re just thrilled for our employees. This is excellent news for the bank, our shareholders, our community and last but certainly not least, our friends at the Royal Bank of Scotland.”
Proceeds from the transaction also will be used in part to retire the bank’s expensive borrowings totaling approximately $1.2 billion. The interest-expense savings will be about $19 million per quarter, according to Sherringham.
The transaction is expected to close in the first quarter of 2004, subject to receipt of customary regulatory approvals.
This latest move with RBS follows the end of one of People’s Bank’s most successful years. Over the last several years the bank has established a significant presence in supermarket banking and has 64 of its 154 branches located in Super Stop & Shop stores with seven-day banking across Connecticut. Supermarket branch deposits totaled $1.8 billion at year-end 2003. Last year, the bank grew retail non-interest-bearing deposits at an 11 percent rate and commercial non-interest-bearing deposits at 13 percent.
According to Klein, who spoke during a conference call on Tuesday morning, the bank also continued to build strong commercial and consumer lending businesses based on its recognized brand, strong relationships and local decision-making during 2003. Average commercial banking loans grew by $204 million in 2003, or 8 percent, and Connecticut home equity lending grew by $110 million, or nearly 20 percent, during the year.
People’s has been the No. 1 residential mortgage lender in the state for the past 11 years, closing over $3 billion in mortgages in 2003.
