Potential Costco (COST) Deal Seen Benefiting Either Citigroup (C) or JPMorgan (JPM)

February 18, 2015 11:33 AM EST
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Analyst Erika Najarian at BofA/Merrill Lynch put some numbers to paper in the event Citigroup (NYSE: C) or JPMorgan Chase (NYSE: JPM) are tapped to replace American Express (NYSE: AXP) at Costco Wholesale (NASDAQ: COST) amid news AmEx will be out at the retailer in 2016.

Najarian said given that both Citigroup and JPMorgan are focusing their consumer efforts on targeting the mass affluent segment, a potential Costco deal makes economic sense for both.

While details are limited, the analyst estimates if either company was to acquire the Costco $14 billion portfolio, they estimates an impact to net interest income of $1.3 billion based on a portfolio yield of 9%.

Assuming either company acquired 100% of the loans and negotiated a merchant discount rate of 1.5%, they believe a possible agreement could generate best case 4.3% upside to 2016 EPS estimates at Citigroup and 3% upside at JP Morgan.

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