Analysis: Target seeks financing for $6.7 billion of cards

Thu Jan 13, 2011 5:49pm EST
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By Maria Aspan

NEW YORK (Reuters) - Target Corp is putting more of its credit card business up for sale in a way that might attract more buyers, but will also net the retailer less money than selling the whole card operation would.

Target said on Thursday it wanted to sell all of its credit card receivables, which totaled $6.7 billion as of October 30. It sold a 47 percent stake in those loans to JPMorgan Chase & Co in 2008.

But Target is only looking to sell the debts that cardholders owe the retailer and will still keep control of the credit card operations, which are part of a key marketing strategy for the company.

Selling the receivables only "opens up the possibility that they could have nontraditional investors," including fixed-income debt investors such as hedge funds, pension funds and mutual funds, said John Costa, a managing director at Auriemma Consulting Group, who advises on credit card portfolio sales.

Target is one of the few remaining U.S. retailers that sells its store credit cards directly to shoppers, rather than through a bank that owns the credit card business. Millions of Americans use store cards to shop at specific retailers, often to buy large or expensive items.

Last year, Target started offering 5 percent discounts in the United States to shoppers who use its branded credit card and is counting on that offer to help it generate more sales.

Many banks that specialize in store credit cards want to shrink or sell those businesses, which tend to have higher-than-average losses than regular credit cards. Banks including Citigroup Inc and General Electric Co's GE Money have put their store card businesses up for sale since 2007 -- and so far failed to find a buyer.

Target's method could find more success, analysts said, even if it will limit the price it could potentially get for its credit card business.   Continued...