MINNEAPOLIS — Target will no longer have to worry about the impact of its consumer credit card portfolio on its financial performance, now that it has agreed to sell the business to TD Bank Group.
Target's credit card business is valued at around $5.9 billion, and TD has agreed to underwrite, fund and own future Target Credit Card and Target Visa receivables in the United States. Under the program agreement, TD will control risk management policies and regulatory compliance and Target will continue to perform account servicing functions. This transaction, which is subject to regulatory approval and other customary closing conditions, is expected to close in the first half of calendar 2013.
"Target is very pleased to have reached this agreement with TD which is the result of extensive efforts by teams at both companies," said Gregg Steinhafel, chairman, president and CEO of Target. "This transaction achieves all of Target’s strategic and financial goals for a portfolio sale. We look forward to working with this premier global financial institution to continue Target’s long history of innovation in our guest-focused financial services strategy."
"Our agreement with Target will significantly expand our presence in the North American credit card business and will establish TD as a key player in this space," said Ed Clark, group president and CEO of TD Bank Group. "We're excited to be working with Target’s strong team and leading retail brand. This asset acquisition aligns perfectly with our strategy, fits our risk profile and is a great complement to our high-growth credit card business."
The agreement allows Target to maintain the current deep integration between its financial services operations and its retail operations. The agreement does not have any impact on Target’s 5% REDcard Rewards program. Target team members will continue to provide all servicing for Target Credit Card and Target Visa accounts. The portfolio sale and program agreement are designed to have minimal impact on Target's current cardholders, guests and the Target team members who support financial products and services, the company said.
Beginning with the fiscal quarter in which the transaction closes, Target will no longer report its U.S. credit card segment. For its most recent quarter, the retailer reported that average receivables for this segment decreased 5% to $5.9 billion in 2012 from $6.2 billion in 2011. Second quarter 2012 portfolio spread to LIBOR was $140 million, or 9.5%, compared with $186 million, or 12%, in 2011. Performance in second quarter 2012 reflected a $30 million reduction in the allowance for doubtful accounts, compared with an $85 million reduction in second quarter 2011.