Private Label Profits Spurs GE Credit Card IPO - Card Issuers News


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Private Label Profits Spurs GE Credit Card IPO

The content is accurate at the time of publication and is subject to change.

In a sign that Americans have renewed their love affair with plastic, GE has announced plans to sell a portion of its massive credit card business, to be called Synchrony Financial (SYF), in an initial public offering.

The move by the conglomerate signals renewed investor confidence in the credit card business as the economy shows continued signs of recovery and the ability of consumers to stay current with their bills after some issuers suffered defaults in the wake of the 2008 financial crisis.

In its filing, GE said customers more than 30 days late on their payments fell almost one half, to 4.3 percent at the end of 2013 from 8.2 percent in 2009. Uncollectible loans dropped to 4.7 percent from 11.3 percent in the same period.

Biggest U.S. issuer

Based on purchase volume and receivables, the filing says Synchrony is the largest U.S. issuer of private label cards with 62 million active accounts as of end of 2013, and partnerships with retail industry leaders such as Wal-Mart, Gap and Lowe’s.

Last year Synchrony financed $93.9 billion in sales, with net earnings of $2 billion, down from $2.1 billion in 2012.  According to the Wall Street Journal, analysts from Bernstein Research last year said Synchrony could have a value of up to $20 billion.

The resurgence in performance of private label cards bodes well for retailers since losses from these cards tend to be lower. The Washington Post reported last November that Capital One, whose acquisition of the U.S. card unit of HSBC Holdings PLC in 2012 made it the third largest store-card issuer, was expanding its private label and co-branded credit card businesses to lure customers of private label cards.

The best customers

Such customers are considered valuable because they make a large number of purchases every month but do not carry a balance. They also tend to prefer co-branded cards for their loyalty programs. Some analysts believe that GE’s decision to spin off its consumer lending unit now that it is surging in profitability may spur competition among lenders.

Last November GE had announced its intent to undertake the Synchrony IPO as the initial step in a long-awaited component of GE’s strategy to downsize GE Capital, which at one point accounted for just under half of GE’s total revenues.

GE projects completion of the Synchrony IPO later in 2014, and at present GE is targeting to complete its exit from the Retail Finance business through a split-off transaction in 2015. GE said it may also decide to exit by selling or otherwise distributing or disposing of all or a portion of its remaining interest in the business.

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