Challenge:
A large portfolio buyer had seen disappointing results from a few previous acquisitions. In one case, a runoff portfolio acquisition’s credit losses exceeded projections, and in another, a few card portfolios were growing slower than expected. Management was under immense pressure to acquire its next set of acquisitions at a profitable margin with upside growth potential, so it turned to PAG for help.
PAG Solution:
PAG was asked to evaluate the Client’s existing data construct and subsequent forecasting models for credit losses, balance attrition, and balance growth. We quickly saw the data being requested from the sellers during the due-diligence process was not robust enough to paint an accurate picture of financial health beyond six to 12 months. Our Client was also struggling to merge different data sets from multiple legacy systems to put the complete portfolio-quality picture together in a timely manner.
PAG redesigned the Client’s process for assessing the current and future health of possible portfolio acquisitions by adding a more comprehensive set of data attributes. We used our GOBLIN data platform and warehouse to consolidate more than 50 data files from 12 different sources for five prospective portfolios. That allowed us to combine and migrate the data into a relational database in half the time it was taking our Client.
PAG then applied its proprietary balance attrition, credit loss, and growth models to redesign the Client’s forward-looking Profit and Loss (P&L) models. The resulting improvement in accuracy allowed the Client to purchase three of the portfolios at a reduced cost over what was being asked.
Client Benefits:
- The Client now provides clearer direction in a standardized manner so future portfolio sellers can provide it more quickly in a useful format.
- The Client can direct these data files into the GOBLIN platform for ingestion, cleansing, storage, and access, and has signed a three-year contract that provides it with the confidence of a consistent approach going forward.
- The Client receives credit loss and balance forecasts from PAG within 10 days of data ingestion by GOBLIN, leading to full P&L projections within 14 days of data consolidation.
- The initial three portfolios acquisitions that used GOBLIN as the data consolidation and forecasting source are performing within 5% of targeted losses, balance growth and profit as compared to the Client’s previous goal of 15%.
- Initial bids on target portfolios go out withing two weeks of receiving the requested data, compared to an average of 35 days (60% faster) prior to working with PAG. In many cases, the first proposal back with a reasonable bid often wins the deal, and a streamlined process can help the buyer respond to more opportunities.
- The Client was so happy with the results that it contracted for two FTE from PAG to provide stand-in risk management and support other compliance and risk needs.
