Chase Buys Half Of Target Card Portfolio for $3.6 Billion

Target Corp. (NYSE: TGT) reported yesterday it would sell about 47 percent of its credit card receivables for nearly $3.6 billion in cash to JPMorgan Chase.

The two will share profits from the portfolio up to a cap of 3.4 percent of the annualized yield. Profits over that amount will go to Target. The Minneapolis-based retailer will control its financial services strategy, according to a press release.

The deal represents a 7 percent discount to the value of the receivables, in line with Target’s allowance for “doubtful accounts as a percentage of accounts receivables,” according to the release.

Receivables on Target’s REDCard and Target Visa cards totaled about $8.3 billion at the end of March, according to Target’s monthly filings on its card master trust with the U.S. Securities and Exchange Commission. Target reported charge offs of 6.83 percent in February and 8.12 percent in March (“Target Card Charge Offs Rise to More than 8 Percent,” April 23).

Target said it expected 2008 charge offs of 7 percent to 8 percent and delinquencies of 4 percent.

Target said the sale would provide liquidity, spread the risk of the portfolio to Chase, and allow cardholders to continue to use their Target cards.
 
In March, Target reported it had sold about half the card portfolio to an unnamed investor for about $4 billion ("Target to Sell Half of Card Portfolio,” March 13). The sale of the card portfolio has been pushed by investor William Ackman who bought 9.6 percent of Target last July.