NEW YORK, March 27 (Reuters) - General Electric Co. <GE.N> and Citigroup Inc. <C.N> are among the most likely bidders for the credit card assets that retailer Sears, Roebuck and Co. <S.N> is looking to sell, according to industry sources. Sears on Wednesday said it was exploring the sale of its $31 billion credit card portfolio, which has plagued the retailer with rising defaults in the weak economy. But the sale is sure to generate interest in the highly competitive credit card industry whose issuers are looking to grow. Industry bankers said the most likely bidders for the credit card portfolio were Citigroup, GE Capital and HSBC Holdings Plc <HSBA.L>, which is in the process of buying Household International Inc. <HI.N>. All three already have substantial private label portfolios. While any top card issuer may be interested in a deal -- including such companies as No. 2 issuer MBNA Corp. <KRB.N>, No. 3 issuer Bank One Corp. <ONE.N> and No. 5 issuer Capital One Financial Corp. <COF.N> -- larger companies like Citigroup and GE are more likely to pull off a deal. "Realistically, the universe of buyers for this portfolio is pretty small, because of the size," said Richard Shane, an analyst at Jefferies & Co. "You need someone who has the capital to make the acquisition." Citigroup is the largest issuer of credit cards and has been challenging GE Capital, which has the largest portfolio of retailer-based cards. Last year, Citigroup won the account of Home Depot Inc. <HD.N>, previously managed by GE. GE still manages the store cards for retailers including Gap Inc. <GPS.N> and Lowe's Cos. <LOW.N>. For GE, the deal would fit well with Chief Executive Jeffrey Immelt's stated goal of expanding its consumer finance business, which currently has more than $70 billion in assets, $28 billion of which are from credit cards. "It's hard to see that anyone who doesn't have a substantial or meaningful desire in the private label business would go anywhere near it," said one industry banker who asked not to be named. "But this is going to take a while." A UNIQUE BUSINESS Several bankers said Sears runs its credit card portfolio differently than other card managers, accepting smaller payments to make accounts current and using larger time frames before charging accounts off, meaning the due diligence on the unit could take longer than normal. Sears said it would complete its review of the business in the second half of 2003. Traditionally, credit card portfolios sell for 5 percent to 20 percent above their overall receivables. That would equate to a before-tax sale price of $5.3 billion to $10 billion for Sears' $30.8 billion portfolio, factoring out the unit's $27 billion in debt. London-based HSBC is large enough to absorb the assets and and is expected to soon complete its acquisition of Household International, which has a large private label credit card portfolio. Another possibility is Morgan Stanley <MWD.N>, owner of the Discover credit card. The Sears portfolio has a high concentration of so-called subprime loans to customers with patchy credit records, which is what has weighed on the stock since the beginning of the year and could make it more difficult to sell. But it is so rare that this large of a pool of credit card assets comes up for sale, that everyone is likely to take a look, Shane said. "Given the tremendous competition in the industry to gain assets, I think everybody is going to have to take a hard look at it," he said. Representatives from GE, HSBC, Bank One, MBNA, Morgan Stanley and Capital One declined to comment. A representative for Citigroup was not immediately available to comment. 03/27/03 17:16 ET
