Credit Card Debt Management

The world’s first independent credit card company, established in 1950, is changing hands. Owned by Citigroup since 1981, the sell of Diners Club international network and franchisor brand to Discover Financial for $165 million was approved this month. This was cash money, a serious investment that belies how badly Discover wants to expand its payment network around the globe.

According to Banking Times, the sell was designed to “cut costs and increase efficiency,” as Citigroup was pretty banged up by bad debt, including that acquired in the subprime mortgage fallout. Citigroup’s profits for 2007 were down more than 50%, and 2008 isn’t projected to be much better.

According to the article, this acquisition is expected to be a big boost to the ailing Discover Financial:

“Diners Club is accepted at more than 8 million locations in 185 countries and Discover expects the purchase to improve its presence among business travellers, particularly outside the North American market. The transaction should add between $10 million and $15 million to the group’s annual pre-tax profit.”

Other finer points include the fact that Citigroup will retain ownership of 13 Diners licensee territories (roughly 30 percent of the total), including USA, Canada, Europe and Japan. It’s interesting that MasterCard was co-branded on Diners Club cards since 2004, a partnership that is expected to continue in the territories controlled by Citigroup. Discover’s acquisition — which gets it into the commercial market for the first time with more than 80,000 such credit cards — totals $30 billion in charge volume. Everything is expected to be finalized within 60 days.