Mike Ginsberg's Musings

Mike Ginsberg

A rundown of all the recent ARM news important to Mike Ginsberg.

Regional Banks Return to Credit Card Market

It wasn’t too long ago that the financial crisis hit and regional banks eagerly exited the credit card business.  That tide has changed as more of the mid-size banks have begun to issue and service their own credit card again, a trend that is gaining steam as growing list of banks are considering their options of organically entering the market versus a jumpstart that includes purchasing an existing portfolio.

Consider that in 2011 Regions Financial bought a $1 billion card portfolio and then took over the servicing function.  In Ohio, Huntington Bancshares in Columbus, Ohio and KeyCorp in Cleveland have begun issuing their own cards.  The strategy points toward banks offering cards to existing customers on a regional basis and not becoming a major force on a national scale.  Slow and steady growth focused on retention of local customers is the game-plan in today’s market.  After being hammered down by the national credit card players, regional expansion among mid-size banks presents a viable and enticing growth market for mid-size ARM companies focused on the credit card sector.

Job Market a Double-Edged Sword for ARM companies

Employers added 169,000 jobs in August and the unemployment rate fell to 7.3% last month, a notable improvement from the 8.1% rate when the Fed launched its bond-buying stimulus program late last year.   On the surface this appears to be good news for ARM companies seeking a lift in their collection results as more consumers return to the work force.  However, the number of new jobs remains lower than the 200,000 amount officials say we need to generate to provide sustained improvements and most of new jobs are still coming from increases in part-time and lower paying positions, which do little to increase consumer confidence.

The Fed won’t pull the stimulus program back until the economy returns to solid footing, presenting pluses and minuses for ARM professionals.  On one side of the coin, the program keeps long-term interest rates down which bodes well for those businesses seeking cheap financing for expansion purposes.  However, credit and collection professionals seeking to improve liquidation results need more significant and sustainable full-time job growth to boost results.  Indications are the Fed won’t change the program now until mid-2014 so if the job market improves in the interim then ARM companies will benefit both ways.

Diversification is The Name of The Game for Some ARM Companies 

Earlier this month, Enhanced Recovery Company (ERC) announced the acquisition of TMone, a call center business process outsourcing company. The move illustrates the efforts among some large ARM companies to diversify their focus from collection services focused large issuers toward a broader suite of complementary services spread over a larger and varied base of clients, a trend we expect to continue among large ARM companies and gain traction among mid-size players.

Student Loan Market Continues to Evolve

J.P. Morgan Chase announced that it is exiting the student loan market in October, leaving Wells Fargo as the only major U.S. commercial bank still providing student loans.  There has been an exodus of private lenders leaving the student loan space since the Obama administration began originating loans directly in 2010.

Consider that Bank of America got out in 2009 and Citigroup followed in 2010 as it sold its 80% stake in a student loan company to Discover Financial.  Today, banks and other private lenders account for only 15% of the roughly $1 trillion student loan market, a percentage that has dropped significantly over recent years.

Some lenders, however, are expanding their private student loan business to provide alternatives for student borrows as the tuition costs continue to escalate.   We believe the private student loan market will rebound as major lenders return to this space, new entrants enter the market and as major universities provide direct loans to retain students seeking cheaper alternatives.  Over time, this will create a viable growth market for ARM student loan specialists, especially those servicing the US Department of Education.