Lloyds, JP Morgan Prep Card-Bond Deals
Credit-card securitizations are in the works on both sides of the Atlantic.
Lloyds Banking is expected to roll out its next offering of U.K. credit-card bonds within a couple of months. J.P. Morgan, meanwhile, is considering a sequel to $500 million of card bonds it issued March 31.
The Lloyds transaction, still in early-stage development, is expected to weigh in around £500 million ($815 million). It would be Lloydsí second credit-card securitization of 2011, and sources said the bank will likely issue two more transactions before the year is out. Lloyds was last in the market with a credit-card deal on Jan. 27, when it sold £500 million of bonds. In 2010, it issued three card-bond transactions denominated in pounds and euros totaling $4.6 billion, plus a $750 million U.S. transaction, according to Asset-Backed Alertís ABS Database.
The timing of J.P. Morganís offering is still fuzzy, but itís expected to match the size of a March 31 transaction from the bank. That deal was J.P. Morganís first card-bond offering since 2009. It also marked the first time a major U.S. bank sold senior credit-card securities since Bank of America issued a $900 million transaction in May 2010.
J.P. Morganís renewed interest in securitizing its card accounts has some market players predicting that U.S. card-bond issuance this year could top last yearís anemic volume of $7.5 billion. So far this year, Citigroup, Discover, GE Capital and J.P. Morgan have issued a combined $3.7 billion of bonds backed by credit-card receivables. The figure for this time last year was $4 billion ó but the 2010 number reflected the final months of government support via the Federal Reserveís Term Asset-Backed Securities Loan Facility.
Still, securitization professionals remain largely pessimistic about the future of card-bond issuance in the U.S. The main reason: The Financial Accounting Standards Boardís FAS 166 and 167 rules, which went into effect at the beginning of last year, effectively nullify balance-sheet benefits for banks that securitize their assets. The accounting changes, coupled with more onerous capital-withholding requirements, have made securitization a much less attractive funding option.
In Europe, meanwhile, the thinking among dealers and investors is that the Lloyds deal will be followed quickly by similar offerings from Barclays and RBS. Barclays has been the most prolific issuer of bonds backed by U.K. card accounts so far this year, with $2.7 billion of securities to date. Most recently, it priced $715 million of bonds denominated in pounds and euros on April 13.
RBS is another story. The bank hasnít issued a credit-card transaction since December 2008, when it sold £1.5 billion of bonds.
Over the past year, a growing number of U.S. buyers have been snapping up U.K. credit-card bonds in response to the lack of new issuance in the States. There have been rumblings that U.K. banks might try to lure even more U.S. investors to their credit-card deals by offering more dollar-denominated tranches, but that has yet to happen.