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Due Diligence of a Credit Card Portfolio
- Client: Global Private Equity Firm
- Project Length: 4 Weeks
- Personnel: Partner, Consultant + Analyst Team
Background
Our client was involved in a competitive bidding process to acquire a large European consumer bank
The target business provided account-level data for each of their products, with the credit card data more substantial and complex than the other products involved in the deal. Our client therefore required expert support to interrogate the cards data quickly and with particular scrutiny
Vestigo were engaged to advise on the bid and carry out detailed historical data analysis to better understand the value of the credit card portfolio, and identify any red flags
Bespoke Portfolio Analysis
The team quickly processed the vast data assets, deriving key metrics, and reconciling them against the seller’s own MI. From here Vestigo built out historical trends, using our extensive experience of credit card portfolios to identify areas of concern, which were investigated and communicated back to the client
Given the current consumer climate, particular focus was given to the affordability of lending within the portfolio. Multiple quantitative views were presented on the relationship between stickiness of revolving customers and their ability to sustainably maintain payments. These views were vital for our client to ensure that any potential revenue was not at the expense of their customers' financial position
Cash Flow Forecasting
A vintage-driven cash flow forecast was created for each of the credit card transactions, allowing our client a great deal of flexibility to build scenarios to suit their wider strategic plan. The cashflows fed directly into the client's wider financial model, so the impact of segment-level portfolio trends within their valuation model could be fully quantified
The flexibility of parameters in the Vestigo cashflow forecast enabled our client to apply specific stress scenarios, for example by flexing the interest rate forward curve and understand the effect on different products within the portfolio
Throughout the engagement, the Vestigo team worked closely with our client to ensure all analysis was delivered quickly and that support was flexible to continually meet the requirements in such a variable transaction process
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