Target Corporation's big drop in credit-card profit in the third quarter has raised questions about whether the retailer may ultimately turn certain parts of the operation over to partner J.P. Morgan Chase & Co.
Target in May sold 47 percent of its stake in the card unit to J.P. Morgan Chase for $3.5 billion and, under terms of the sale, the portfolio's performance must remain "sufficiently strong."
If "substantial unanticipated portfolio deterioration" occurs, J.P. Morgan Chase would gain the right to direct Target's credit-card team to put in place alternative underwriting and risk-management practices until sufficient improvement is seen.
While it isn't clear whether J.P. Morgan will eventually take over management of certain parts of Target's credit-card portfolio, the portfolio's deteriorating performance since May shows how quickly the economy's woes have rattled even recent financial plans.
Target on Monday posted a 24 percent drop in net income on reduced profit from the credit-card division. Bad-debt expense more than doubled to $314 million from a year earlier as more customers defaulted on card bills. The deteriorating economy hurt the card division's performance.
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