Citigroup (NYSE: C) is the only large-cap bank that should keep its credit card business, according to Richard Bove, a noted analyst from Rochdale Securities.
Bove recently released a report saying that Bank of America (NYSE: BAC) should spin off its credit card unit. The Wall Street Journal recently published a major article on Bank of America’s struggles to bring its credit card business to profitability. The Journal noted that the unit lost $4.5 billion during the first three quarters of 2009, making it the bank’s worst performing business unit. According to the article, Bank of America is the second largest credit card company after JP Morgan Chase (NYSE: JPM).
Bove believes that BofA’s pretax earnings would be four times higher if the company did not own its credit card business. Bove argues that a spinoff is the only solution for the bank because he believes no one would purchase the bank. He notes in his report that Morgan Stanley came to the same conclusion when it spun off Discover in 2007. Discover now trades at just half of its IPO price of $28.55.
Bove says that Citigroup is an exception to the advice that he has suggested to other banks, because most of its credit card operations exist outside of the United States and are not subject to the Credit CARD act.
Bove commented in his report, “If you’re going to sell credit cards in China, Korea, India, then you’ve still got a sizeable growth opportunity because for every one person in the United States, there are 10 people from the Pacific Ocean to India. Those people are seeing their incomes growing faster than in the United States. Those populations are growing faster — everything tells you that the credit card business is a bonanza business in that area of the world.”
