Barclays grows US card business through securitization

Fri Nov 16, 2012 2:39pm EST

Nov 16 (IFR) - Barclays recently priced its first asset-backed security backed by US credit card receivables, in a bid to diversify funding sources for its US lending business and gain a bigger share of the American cards market.

The bank's US$1bn Dryrock Issuance Trust Series 2012-1 and 2012-2, the sponsor/servicer of which is Barclays Bank Delaware, was the first Reg AB-compliant platform for Barclays, and the first credit card trust to be compliant with the Federal Deposit Insurance Corporation (FDIC) Safe Harbor Rule.

The SEC's Reg AB rule, created in 2005, governs the requirements for the registration, disclosing and reporting of all ABS, while the FDIC rule clarifies how the FDIC treats securitization if it becomes the receiver of a failed bank.

The portfolio underpinning the Dryrock transaction consisted of VISA, MasterCard and American Express accounts originated by the bank, and was viewed as a positive for the credit card market, which has been shrinking, according to securitization specialists.

"This is a path to diversify our funding sources for the business," said Jerry Pavelich, chief financial officer of Barclaycard US. "All we're trying to do with our mix of funding is diversify and assure we have funds at attractive rates and a variety of sources."

Over a year ago, Barclays moved into the retail deposit business, and now has about US$1bn. "We said that we would add securitization to the mix when the time was right," Pavelich said. "Now, between the mix of broker deposits, our online presence, and securitization, we like the look and feel of how we fund our business. We're less reliant on intercompany fundings."

Barclaycard's US business has been on a positive growth trajectory. In 2007, the business was at US$4bn in total outstandings, rising close to US$10bn by 2008. While things slowed down after the crisis, outstandings started growing again to US$13bn by the end of the second quarter this year.

NEW MANDATES

The bank's co-branded model has recently succeeded in tempting key relationships away from some of its competitors. For instance, earlier this year Sallie Mae dropped Bank of America and chose Barclays for its UPromise college-savings credit-card program, which offers rewards for college students in exchange for spending with the card.

Barclays also won a US$700m portfolio for Resorts Condominiums International (RCI), a timeshare owner. The Mastercard program offers elite rewards for these owners.

Pavelich said that the company had added US$2bn in outstandings through acquisitions, and another US$1bn in "organic" growth. "Other lenders are shrinking, while we are growing," he said.

Amid restrictions by the Financial Services Authority in the UK as to how large lending exposures can be, the only option for the US arm of the company was to avoid intercompany funding. "If we want to grow this business, we realized we had to diversify our funding sources," said Deepash Jain, associate director of Barclays Treasury. "Moreover, the FDIC encourages this diversification."

Jain says that US credit card ABS volume started picking up this year after a lull, with nearly US$40bn from US and global issuers selling bonds to American investors.

"The level of confidence in the Triple A market from both investors and issuers led to increased volume," Jain said. "Going forward, the growth hinges on several things: the depth and breadth of investors, and the growth of credit card issuers."

Barclays Bank Delaware wants to be a programmatic issuer. Depending on market conditions and funding requirements, the bank hopes to tap the US ABS market one or two times a year, Jain said.

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