Greenberg: A Sub-Prime Credit Card Lender?

Alliance Data Systems calls itself a transaction based marketing and customer loyalty solutions company.

credit cards
credit cards

But analyst Bill Ryan of Portales Partners really thinks it’s a credit card company—and not just any credit card company but a subprime credit card company that gets valued like a credit card processor.

Ryan specializes in financial services firms. He’s been saying this for about a year—ever since he initiated coverage on July 16 with a sell.

Based on the stock price after he made his original comments, much of Wall Street ignored him.

Now maybe they may want to take a closer look.

A week ago Gander Mountain, the Minnesota sporting goods retailer, sued World Financial Network National Bank, the credit card subsidiary of ADS.

Here’s where it gets interesting. According to the lawsuit, Gander Mountain charged that on co-branded cards—these are cards that can be used anywhere as a Gander Mountain Master Card—ADS won’t give credit to Gander Mountain customers with FICO scores ABOVE 800.

That’s right, according to the lawsuit: It won’t give these cards to customers with really good credit.

ADS, for its part, told me it doesn't comment on speculation and litigation. It also insists it's not a subprime lender. According to the company’s statement to me:

“…Alliance Data is not a subprime credit card lender. Anyone who understands the Company’s business model and its bank subsidiary operations knows this fact, and to report or infer otherwise would not only be incorrect but irresponsible. You’ll also note that over the course of the recent recession, Alliance Data’s card portfolio held up better than the general industry, including against other prime lenders.”

As you might guess Ryan, via his analysis, has a different view.

My take: After digging through the documents, conference calls and analyst reports I can say this is one that definitely bears watching.

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