Barclays offloads US credit card debt to Blackstone

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Barclays has agreed to sell approximately $1.1bn worth of credit card debt to private equity firm Blackstone, as the British bank steps up efforts to move assets off its balance sheet in advance of more onerous regulations.

The deal underscores how large private capital groups such as Blackstone that face fewer restrictions than banks are stepping into mainstream debt markets to help alleviate capital pressures on large lenders.

Blackstone’s credit and insurance division will buy the US credit card receivables from Barclays for an undisclosed sum, and the bank will continue to service the accounts for a fee. The sale is expected to be the first in a series of transactions to reduce its risk-weighted assets.

The move comes a week after Barclays chief executive CS Venkatakrishnan laid out a refined strategic vision for the bank, with an ambitious plan to return £10bn to shareholders through dividends and share buybacks. The goal hinges on a near 20 per cent increase in revenue in the next three years.

Barclays is relying on American consumers to help it achieve that aim and is targeting an $8bn increase in US credit card lending in the next three years. Selling existing debt to Blackstone will allow the bank to increase its lending capacity without adding to its capital requirements or risk.

Barclays operates a partnership model in the US market, running co-branded credit cards for 20 companies including The Gap, JetBlue Airways and the AARP. It has $32bn of net receivables and generates $3.3bn of income a year.

However, at the strategy day last week the bank said it faced a £16bn increase in US card risk-weighted assets (RWAs) as it moves to an “internal ratings-based” model, required by UK regulators. The sale to Blackstone will be the first in a series designed to offset this RWA inflation.

Barclays hopes that a long-term strategic relationship with Blackstone could lead to larger asset sales in the future, according to people familiar with the matter. It is providing Blackstone credit facilities to manage daily working capital, but it will not give seller financing, the people said.

Since the collapse of several large US regional lenders last March, Blackstone has been buying assets from banks and managing them on behalf of its credit and insurance clients. Besides credit card debts, Blackstone has picked up home improvement loans, auto loans and loans financing rooftop solar power.

Blackstone president Jonathan Gray told the Financial Times last May the world’s largest private capital group — which has $1tn of assets under management — could become a “valuable partner” to banks looking to shed assets. Its insurance customers carried lower costs of capital than banks, making them a good home for many loans, said Gray.

“Rather than putting all [of the risk] on its balance sheet, maybe they keep 50 cents [on the dollar], and put 50 cents with us,” he noted.

In a July 2023 earnings call, Gray told analysts Blackstone struck partnerships with five US lenders totalling $6bn in assets, but that figure has since grown significantly, according to people briefed on the matter.

Unlike rivals such as Apollo Global and KKR, both of which own large insurers, Blackstone manages assets it acquires on behalf of insurers such as Allstate and AIG.

Blackstone merged its credit and insurance investment operations in September in preparation for a push into asset-backed lending markets, Gray and co-founder Stephen Schwarzman have told shareholders.