SAV lines up £500 million for card deal

SAV Credit, a specialist UK credit card lender,
is on the lookout for acquisitions – and is ready to spend up to
£500 million ($988 million) on a second credit card portfolio
acquisition.

SAV, which has around 490,000 cards in issue,
wants to complete another deal in the next 12 months and take its
card numbers close to 1 million, CI understands. The move comes
after it bought HSBC’s marbles/Beneficial businesses last October
for £385 million, which tripled the size of its credit card
book.

SAV has been impressed with the performance of
the new accounts so far, and believes its ability to manage card
lending at the underserved end of the market will give it an edge
in a more strained economic climate.
A senior SAV
source told CI: “The prime credit card issuers are looking to stick
to their knitting at the moment, they are focused on their core
businesses and that means there’s some possibility of non-core
portfolios coming up – an area where we are particularly strong.
Those are the kind of portfolios that interest us.”

As prime lenders tighten up underwriting
criteria, the market has opened up for lenders like SAV who offer
products to people who may have been refused credit elsewhere.
There has been evidence of mainstream banks and consumer finance
businesses moving away from non-prime lending, which means there
could be a bigger role for specialists like SAV and subprime
lenders like Provident in the UK.

The source added: “We are a specialist in that
area, and while some of the things we do are very similar to other
prime lenders, you have to take a different approach to this market
to be good at it.”

SAV is understood to be looking for a deal of
between £300 and £500 million. An acquisition of that size would
probably see it exceed the 338,000 accounts it bought from HSBC,
and would see it approach a 1 percent market share of the UK credit
card market. However, it would have a significantly higher market
share among its more natural peer group at the subprime end of the
market.

The HSBC deal was seen as relatively cheap by
analysts, working out at around £18 an account. But credit
portfolios are likely to have become cheaper in the months since
then because of a declining risk appetite among banks.

The source said SAV was hopeful of securing the
funding for the deal because of its good shareholder base. The
business is backed by management and a group of private equity
investors including Palamon Capital Partners, Electra Private
Equity and Morgan Stanley Alternative Investment Partners. The
source added the success of the marbles/Beneficial deal had
reinforced the businesses’ credibility with debt and equity
investors. It could be some time before any deal is completed
because of the highly technical nature of credit card acquisitions.
In addition to the lengthy migration process, the due diligence and
analysis is more complex than, for example, mortgage portfolios or
instalment loan portfolios.

SAV Credit has two products, the MasterCard
aqua card, issued by Halifax which has a typical APR for new
applicants of around 36 percent, and the marbles Card acquired from
HSBC. The business, based in Kent, was set up in 2001 and is built
around information-based risk management techniques. It developed
its own underwriting and account management models to help it serve
its target market, which is consumers who are overlooked by
mainstream financial services.