A second big American financial services player has called time on the UK credit card market with the owner of the Goldfish brand selling the business to Barclays.
The sale by Discover Financial Services, founded in 1986 and now one of the biggest card issuers in the US, comes less than a week after Egg, the US-owned online bank, wrote to 161,000 of its customers banning them from running up further charges on their credit cards.
Egg is owned by Citigroup, the world’s biggest financial services operator, which has been hit billions of dollars of writedowns as a result of the credit crunch. The move was seen as evidence that Citi was offloading unprofitable British borrowers. They were told their risk profile was unacceptable.
The sale by Discover, which until last year was part of Morgan Stanley, underscores tough conditions of the UK credit market and the difficulty of turning a profit from the business.
Barclays will pay £35 million in cash to take on 1.7 million Goldfish card clients with outstanding balances totalling £2billion. Discover will take a one-off post-tax first-quarter charge of up to $210 million (£108million), reflecting its loss on the sale.
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According to figures issued yesterday by Apacs, the payments association, spending on plastic over Christmas was just 4 per cent ahead of the previous year, at £32.2 billion, the slowest year-on-year growth for four years.
David Nelms, Discover’s chief executive, said the “funding and operating environment [in the UK] continues to be a challenge”. Goldfish’s sale would free capital and enable Discover to focus on its US card business.
Discover took an impairment charge of $391million against Goldfish in the fourth quarter in a hit that pushed it into a group pre-tax loss of $88million for the period.
The international arm, which includes the UK operations, recorded a quarterly pre-tax loss of $423 million as a result of the charge. It also posted losses for the same period in 2006.
Barclays plans to fold Goldfish into Barclaycard, its international credit card operation, which has 9.6million British cardholders and 17million worldwide. After a fall into the red in last year’s first half, Barclaycard has been rebuilding itself under its new chief executive, Antony Jenkins.
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Subject to regulatory approval and final due diligence, Barclays expects to complete the acquisition in the first half. It said it had not yet been decided whether to retain the Goldfish brand.
Goldfish was acquired in 2006 by Morgan Stanley. Relaunch plans were put on hold after the US bank spun off its credit card business into Discover.