This week, Bank of America announced it would be dropping its international credit card operations to focus on its core business: American credit cards. The bank’s strategy is clear, says CEO Brian Moynihan. “We have been transforming the company to deliver the franchise to our core customer groups, and building a fortress balance sheet behind that,” he’s quoted in the bank’s official statement.
The Charlotte, N.C.-based company has sold its Canadian credit card business to TD Bank Group for $8.6 billion and plans to “exit” credit card businesses in the U.K. and Ireland—operations that employ 4,000 people and have extended $19 billion worth of credit, according to its press release. Earlier this month, Apollo Capital Management, Inc. signed an agreement to buy BofA’s credit card accounts in Spain; the company’s $200 million portfolio of small business card loans in the U.K. were sold to Barclays in April 2011.
BofA will also sell off its international credit cards, which aren’t even branded with BofA’s name.
Cheryl Garrett, a financial expert and founder of Garrett Planning Network, a financial planning company based in Kansas, says there are a few factors that could have driven BofA’s decision.
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On the one hand, the international operations are simply worth quite a bit of money. That’s particularly important now, in the wake of the bank’s $8.8 billion loss in the second quarter and in light of its challenges to come. The company faces major legal costs to defend itself against lawsuits brought by homeowners, investors and government regulators over its sale and bundling of high-risk mortgages during the housing boom. Meanwhile, new laws including the Dodd-Frank financial reform act require important banks like BofA to keep more hard reserves on hand and reduce how much they leverage their capital in the form of lending. “I think they’re absolutely needing to get cash,” Garrett says.
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On the other hand, the recent upheaval on the streets of London and continued concerns about the state of the European economy suggest that now may be the best time to exit the market, Garrett says. “It’s one of two things,” says Garrett. “It’s either an asset that’s worth something that they can sell to shore up their balance sheet, or this asset is potentially very risky and would add to the current risks of loan losses. Or it could be both.”
As Bank of America sells off parts of its sprawling empire, the effect on the megabank’s balance sheet will be huge, but the effect on American consumers should be minimal, according to a number of credit card analysts.
“I don’t see any immediate impact for consumers,” says Beverly Harzog, Credit.com’s credit card expert.
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Image: The Consumerist, via Flickr.com