Barclays to buy Providian Financial

Discussion in 'Credit Talk' started by Neil, Feb 7, 2004.

  1. Neil

    Neil Well-Known Member

    Barclays close to £2.2bn US credit card buy
    By Grant Ringshaw (Filed: 08/02/2004)


    Barclays is in advanced talks to buy Providian Financial, the US credit card company, in a deal which could be worth $4 billion (£2.2 billion).

    Britain's third largest bank - which announces full-year results on Thursday - is understood to be haggling over price after the two sides held further talks last week.


    Matt Barrett
    Matt Barrett, the chief executive of Barclays, has made no secret of his ambition to expand in the US and to create a global credit card business. Last autumn Barrett said he wanted to expand Barclaycard's overseas business from 1.4 million customers to make it equal in size to its UK business, which is the market leader with 9 million cardholders.

    Providian is one of the 10 biggest credit card lenders in the US. The San Francisco-based group has more than 11m customers and has operations throughout America.

    The company, which was one of the US financial services sector's success stories of the 1990s, has been seen as a takeover target for much of the past year. In 2003 it appointed investment bankers to look at a sale.

    New management, led by Joseph Saunders, the chief executive, was called in two years ago to turn the business around after Providian ran into problems by issuing credit cards to people with low credit ratings. When customers defaulted on loans, Providian plunged into losses and its shares slumped by 94 per cent in 2001.

    Bankers say that Barclays is concerned about overpaying for the business. Although Providian enjoyed particularly strong fourth quarter results, with a five-fold increase in profits, some analysts have raised questions about whether the group can maintain its sales momentum. This has led Barclays to question whether the $4 billion price tag can be justified.

    The takeover talks are thought to be at a delicate stage and Barclays could still walk away from the deal.

    Takeover speculation has driven up Providian's share price by about 12 per cent since the start of the year, valuing the company at $3.8 billion last week. A number of US banks have looked at the business and Lloyds TSB has also been suggested as a possible bidder.

    The $58 billion merger of JP Morgan Chase and Bank One, which has a major credit card business, announced last month, has also sparked suggestions about further consolidation involving card companies.

    Barclays has had dealings with Providian in the past. Two years ago it bought Providian's UK credit card business - which had 500,000 customers - in a £454 million deal. That price represented a £70 million premium to the loan assets. Bankers also say that one advantage of the deal is that Barclays and Providian use similar technology, which would allow Barclays to make sizeable cost savings through integrating the business.

    Barclays has looked at a number of US deals and is thought to have considered bidding for North Fork and GreenPoint Financial, two New York banks, and Sovereign Financial in Pennsylvania.

    Barclaycard has been one of Barclays' strongest growth areas. Interim results in August showed that the division's operating profits had jumped by 22 per cent.
     

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