Target trumpets credit card deal, Wall St unsure

NEW YORK (Reuters) - Target Corp on Tuesday likened the credit card deal the discount retailer reached with JPMorgan Chase & Co (JPM.N) to devising a dream financial services business with a dream partner.

But not all on Wall Street were as star struck, and shares of Target traded little changed on Tuesday, a day after the deal was announced.

Late Monday, Target said it would sell a 47 percent interest in its credit card business to JPMorgan Chase for an initial investment of $3.6 billion.

The deal means Target will still run its credit card business, which includes a namesake Visa card and a store card, and it will get cash to run its business.

JPMorgan gets the right to future profits from the business, and both companies would bear a share of net portfolio losses, if any occurred in the future.

"We expect to get hundreds of millions of dollars from profit from this venture unless we really screw it up," Chief Financial Officer Doug Scovanner said on a conference call with analysts. "Personally, I think this is what Dire Straits had in mind in the 1980s anthem, 'Money for Nothing.' I think this is wonderful."

Uta Werner, an retail analyst with Sanford C. Bernstein & Co, described the complicated structure of the deal as a "note sold to JPM, backed by a 47 percent undivided interest in Target's receivables, in exchange for cash proceeds of approximately $3.6 billion and subject to a profit and risk sharing agreement."

She said the arrangement gives Target a single major source of liquidity that will allow the retailer to implement its capital investments and $10 billion share repurchase program, which she viewed as "a positive."

JP Morgan equity analyst Charles Grom said the positives of the deal "seem to outweigh the negatives despite the deal structure differing materially than we had anticipated."

"With the company's credit card review now concluded we believe the cloud of investor's concerns regarding credit risk may be lifted and we reiterate our overweight rating on shares of Target," he wrote.

But Citigroup analyst Deborah Weinswig said Target's credit card receivables were being sold for a roughly 7 percent discount.

"While this deal provides Target with liquidity to implement business plans such as capital investment and share repurchases without accessing term debt markets this year, the remainder of Target's credit portfolio continues to expose the company to weak credit conditions," she wrote.

Target said on Monday that it expected net write-offs on the portfolio as a percentage of receivables in the range of 7 to 8 percent for the year. Previously, it said those write-offs were "not likely to rise much above 7 percent."

On the call with analysts, Scovanner said Target was seeing some "portfolio duress" in four specific states -- Florida, California, Arizona and Nevada. Those states have been hit hard by the slowing U.S housing market.

But he balked at the notion of terminating the deal with JPMorgan if Target were to find another partner interested in its full credit card portfolio.

"We just announced that we're intending to get married in a few weeks and you're asking me what happens if I want to get divorced," he said. "I'd far rather live for the moment with the happy ideas of what's going to happen on this honeymoon than worry about how to unwind this deal."

Target shares were up 23 cents to $53.41 in midday New York Stock Exchange trading.

(Reporting by Nicole Maestri, editing by Gerald E. McCormick)