Driving More Value After the Credit Crisis... Regions Buys $1B In Credit Card Assets (RF, COF)

Regions Bank (NYSE: RF) had a very rough day as more and more pressure came out about banks in general and in banks that still have some past issues they are fighting through.  There is a real question to ask here: If things are really so bad with loans and with the banking portfolios, then why is a bank like Regions making an acquisition of a $1 billion credit card portfolio?

Regions signed a pact with FIA Card Services to acquire the Regions-branded credit card portfolio.  The $1 billion portfolio is of some 500,000 existing Regions customer accounts.  The bank says this was to “accelerate Regions’ efforts to improve balance between its consumer and commercial loan portfolios, further diversify revenue streams and better serve its customers.”

Investors do not need to consider the part about “better serving customers” but the revenue diversification issue is key.  Whether you believe many of the metrics ahead are going to hurt banks or not, banks keep reporting that their credit metrics in card services are getting better in both late pay and charge-offs.  The financial terms were not disclosed and Regions said that it expects the transaction to close during the second quarter.  It looks like if you read into the release further that Regions is going to aim for a higher credit card market, which means it may look a bit more and more like Capital One Financial Corporation (NYSE: COF) in the quarters ahead as it may get more and more card-related customers outside of just the bank.

Regions did note, “Customers will experience minimal impact as FIA Card Services will continue to service the accounts held by Regions customers under an interim servicing agreement until mid-2012, when Regions will integrate credit card servicing into its industry-leading customer service environment.”

When Regions gave its last earnings report, it turned in $0.01 EPS versus -$0.10 EPS expected as a loss at Thomson Reuters as its delinquencies declined again.  Its prior earnings report also said that “criticized and classified” fell again, noted that non-performing loans fell by 23%, charge-offs fell by 29%, net interest margin improved, and non-interest expenses fell 8%.

The other issue worth consideration is that Regions previously reported that its tangible book value per common share was $6.00 per share when the bank stock was closer to $7.00.  Shares closed down almost 5% at $6.05 on Monday before the news surfaced about this transaction.  The 52-week trading range is $5.12 to $8.09.  There is of course no way to know how its quarter is working out and there is no assurance that book value will keep rising if earnings stay positive, but this would imply at least some belief on that front.

Thomson Reuters has consensus earnings expectations of $0.08 EPS for 2011 and $0.62 EPS for 2012.  Banks cannot control their share price, but if they can keep driving their tangible book value higher and keep generating income then many new investors and past investors may begin to pay some attention over the long-term.

JON C. OGG