Green Dot Climbs 7.7% After Regulators Approve Bank Purchase
Green Dot Corp., the biggest U.S. provider of reloadable prepaid debit cards, climbed the most (GDOT) since August after regulators said it could buy a bank, allowing the company to avoid costs tied to customer deposits.
Green Dot can issue prepaid cards backed by its own deposits once the acquisition of Provo, Utah-based Bonneville Bancorp is completed, the Federal Reserve Board said today in an order approving the purchase. The Fed also approved Green Dot’s request to become a financial holding company.
“The deal will lead to cost savings as Green Dot will no longer be reliant on third-party banks for card-issuance,” Michael Grondahl, an analyst at Piper Jaffray Cos. who rates the shares “neutral,” wrote today in a note to clients. “This is clearly a near-term catalyst for the stock.”
The Fed board, led by Chairman Ben S. Bernanke, voted 4-1 to approve the application by Monrovia, California-based Green Dot. Fed Governor Elizabeth Duke dissented. “Companies with narrow business plans face risks that are different than those faced by more diversified companies and are more vulnerable to unexpected shocks,” Duke said.
The card provider aims to curb its reliance on partner bank Synovus Financial Corp. and win more customers who earn less than $75,000 a year by offering new products, Green Dot Chief Executive Officer Steve Streit, 49, said today in a phone interview.
“There are opportunities for other products” beyond prepaid cards, said Streit, who declined to elaborate. “The real driver of this decision was the innovation, and the platform that this gives us to serve a much wider group of Americans who are looking for more basic banking services.”
Green Dot plans to continue its bank partnership with General Electric Co. (GE)’s financial unit for prepaid debit cards sold by Wal-Mart Stores Inc. (WMT), while transitioning accounts from Columbus, Georgia-based Synovus to Green Dot’s bank over the next 12 to 18 months, Streit said.
Bonneville CEO Doug Christensen declined to comment, referring inquiries to Green Dot. Alison Dowe, a spokeswoman for Synovus, didn’t immediately return phone and e-mail messages left after normal business hours.
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