The Challenge
A top-10 Canadian chartered bank had accumulated a substantial block of charged-off credit card receivables on its balance sheet. The portfolio consisted of approximately 85,000 accounts with an aggregate face value of $140 million. The accounts ranged from 180 days to 24 months post-charge-off, with the majority falling in the 6-to-12-month window.
The bank faced mounting pressure from OSFI on capital adequacy ratios. Charged-off receivables, while technically still assets, carried punitive risk weightings that consumed capital the bank wanted to redeploy into new originations. The internal recovery team had been working the portfolio, but diminishing returns on older accounts made continued internal efforts increasingly difficult to justify from a cost-per-dollar-recovered perspective.
Beyond the financial mechanics, the transaction required board-level governance approval. The bank's risk committee needed to be satisfied that any buyer would meet the institution's standards for consumer treatment, data security, and regulatory compliance. The reputational risk of selling to a buyer that would generate consumer complaints or regulatory scrutiny was a non-starter.
Our Approach
We submitted a letter of intent within five business days of receiving the initial data tape. Our bid was structured to address the bank's three primary concerns: price certainty, execution speed, and post-sale consumer treatment standards.
On pricing, we provided a firm bid with no financing contingencies. The bank's treasury team confirmed our proof of funds within 48 hours. This eliminated the execution risk that had been a concern with other potential buyers who required syndication or third-party financing arrangements.
For the compliance component, we provided our full compliance manual, consumer communication templates, complaint handling procedures, and evidence of our dispute resolution framework. We also shared our data security protocols, including encryption standards, access controls, and employee screening procedures. The bank's compliance team conducted a thorough review and confirmed that our standards met or exceeded their internal requirements.
The data tape analysis was completed in parallel with the compliance review. We segmented the portfolio by vintage, balance range, geographic distribution, and prior recovery activity. This segmentation informed our pricing model and allowed us to present the bank with a clear rationale for our valuation. Transparency in pricing methodology was important to the bank's board, which needed to demonstrate to regulators that the sale was conducted at fair market value.
Addressing Board Governance Requirements
We prepared a thorough buyer profile document tailored to the bank's board presentation format. This included our corporate structure, audited financial statements, transaction history, regulatory standing across all operating jurisdictions, and client references from other Schedule I bank transactions. The bank's corporate secretary confirmed that our documentation package was among the most complete they had received, which accelerated the board approval timeline.
We also agreed to contractual provisions governing post-sale account servicing, including limitations on communication frequency, minimum settlement authority thresholds, and a commitment to maintain dedicated Canadian-based servicing staff for the portfolio. These provisions were incorporated into the purchase and sale agreement as binding covenants.
The Result
The transaction closed 52 days after the letter of intent was signed. The bank achieved a clean balance sheet exit on the full $140 million in face value, freeing significant regulatory capital that was immediately redeployed into new credit card originations.
From the bank's perspective, the sale accomplished three objectives simultaneously. First, it improved the bank's capital adequacy ratio by removing the risk-weighted assets from its balance sheet. Second, it eliminated the ongoing operational cost of internal recovery efforts on diminishing-return accounts. Third, it established a precedent and a relationship for future portfolio dispositions, giving the bank a tested counterparty for subsequent transactions.
In the twelve months following the close, the bank received zero consumer complaints attributable to the portfolio transfer. The transition of account servicing was seamless from the consumer's perspective, with all communications handled in accordance with the contractual standards established during the sale process.
The bank subsequently engaged us for two additional portfolio sales within the following fiscal year, each following a streamlined diligence process given the established relationship and documented compliance track record.