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Amex’s $1B Costco Cobrand Portfolio Sale Details Set

The long-anticipated sale process of American Express’ Costco cobrand card portfolio to Citibank has officially kicked off.

Amex announced yesterday (Feb. 29) that it has entered into an agreement to sell the portfolio in a deal that is expected to close in June 2016. At that time, eligible Costco American Express Card cobranded accounts will become Citi customers. Cardholders will receive more details as the date nears.

Amex said the gain on the sale will be determined based on the assets actually sold, which is estimated to be approximately $1 billion, but in its release about the news, the company noted: “Given that the close is still several months away and the cardmember borrowing and paydown trends are difficult to predict in this type of transition, the final gain could differ from the estimate.”

This sale follows a relatively tough 2015 for Amex, which included the decision of Amex and Costco to end a 16-year deal after a contract on the cobranded deal could no longer be agreed upon.

“We are immensely pleased to have entered into an agreement to acquire the Costco portfolio,” Jud Linville, head of Citigroup’s card operations, told Bloomberg, noting that Costco has 51 million members in the U.S.

For Amex, this sale comes during a period of management reorganization as it looks to shave $1 billion in operating costs over the next couple of years.

The card network will attempt to accomplish this at least partly through streamlining and consolidating some marketing activities. CEO Ken Chenault said in a statement last month: “To get ahead of the changes that are altering the dynamics of the payments business, we need to readjust our expense base. This is a big task. It essentially means that we must transform the way the company works.” There will be job cuts in the offing, said the CEO. “At this time, we do not know what the magnitude of those reductions will be, as decisions on specific positions affected are yet to be made.”

The company initially announced in Feb. 2015 that its cobrand and merchant acceptance agreements with Costco would end March 31, 2016. The fall prior, Costco said it would be cutting its ties with Amex in Canada at the end of 2014. While Costco was once in a retail class of its own that accepted American Express — but not Visa or MasterCard — the decision marked the end of the days of exclusivity.

“We are proud of the value created over many years for Costco, for our cardmembers and for our shareholders,” Chenault wrote in a prepared company release last year at the time. “Taking a very disciplined approach, we began discussions on a possible renewal with Costco well in advance of the contract expiration. However, we were unable to reach terms that would have made economic sense for our company and shareholders. Instead, we will focus on opportunities in other parts of our business where we see significant potential for growth and attractive returns over the moderate to long term.”



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