Capital One sells Best Buy to Citigroup

Friday, February 22nd, 2013

Capital One Financial Corporation agreed to sell the portfolio of Best Buy private label and co-branded credit card accounts to Citigroup. Capital One and Best Buy have decided to end their two year relationship.

None of the parties disclose the sales price. However, Capital One said there would be no significant gain or loss on the transaction. The sale of the loans to Citi and early termination of the Best Buy partnership are anticipated to be closed in the third quarter of 2013.

Several years ago Capital One started its foray into the store-branded credit business. They purchased the credit card portfolio of Canadian retail conglomerate Hudson’s Bay and only four months later picked up the credit card portfolio of Kohl’s Department Stores. Then they bought HSBC’s U.S. credit card portfolio, which contained 23 retail partnerships including the Best Buy portfolio. This allowed them to bring their positions to the forefront of the store card business.

The private-label credit cards usually carry higher interest rates and lower credit limits than other card types. However, consumers with limited credit options rely on these cards because stricter standards on traditional cards have made store cards more appealing to consumers. But because they are unsecured there is still the risk of default.

The store-brand credit card business is not profit and not everybody loves private label, but those who know how to manage the risk can make a lot of money.

Capital One tends to be more selective about its private-label credit card business. They are still looking for new partnerships.

The Best Buy cards can only be used at its stores and MasterCards bearing the retailer’s name (known as co-branded cards) can be used anywhere. Best Buy has come under pressure as shoppers have migrated online.

By buying the Best Buy Citigroup reverses. Just a few years ago it was planning to exit the private-label card business. Now it’s hanging on to the business and calls it Citi Retail Services. Doing this Citigroup expects to significantly expand their position as a market leader in North America. However, the purchase of the Best Buy portfolio won’t bring them much this year.

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