RBC to Buy BofA's Card Portfolio

In an effort to extend its offerings, Royal Bank of Canada (RY - Snapshot Report) plans to acquire the Shoppers Optimum MasterCard credit card portfolio from Bank of America Corp. (BAC - Analyst Report). The announcement comes with the launch of the co-branded MasterCard offered by Royal Bank of Canada (“RBC”) and Shoppers Drug Mart Corporation, a leading pharmacy chain in Canada.

The co-branded card, RBC Shoppers Optimum MasterCard, further consolidates RBC’s alliance with Shoppers and complements the RBC Shoppers Optimum banking account and debit card.

Financial terms of the deal for the purchase of the credit card portfolio were not made public. It is subject to customary regulatory approvals as well as other conditions and is anticipated to be accomplished later this fall.

Following the closure of the deal, RBC intends to move the existing Shoppers Optimum MasterCard credit cards into the RBC Shoppers Optimum MasterCard credit card program. With no annual fees and the option of earning reward points for procurement, the co-branded card is expected to garner popularity and strengthen the customer base.

The deal is a strategic fit for RBC. It will not only help increase its MasterCard product offerings, but also bolster its customer base and facilitate revenue generation amidst the stressed conditions in their lending business.

On the other hand, Bank of America has been involved in restructuring its business and has made several asset sales in the past few years as part of its effort to rebound from the financial crisis and build up its capital levels. As a matter of fact, last year, the company vended its Canadian consumer credit card business to Toronto-Dominion Bank. Also, for Shoppers Drug Mart, the deal will help increase the financial flexibility of its customers and add to its competitive edge.

The shares of RBC retain a Zacks #2 Rank, which translates into a short-term Buy rating.