The JP Morgan (NYSE:JPM) Sears Canada (TOR:CA:SCC) Breakup


The deal is off between JP Morgan (NYSE:JPM) and Sears Canada (TOR:CA:SCC). According to the latest news, the bank declared on Monday that it is terminating the deal related to Sears (TOR:CA:SCC) cards and Sears (TOR:CA:SCC) MasterCard (NYSE:MA) credit cards in Canada. This termination is expected to come in to action from November 15, 2015, and will be a huge setback for the already struggling retailer.

The bank has quite recently sent a non-renewal notice to the retailer that terminates the agreement. However, the U.S bank will continue to carry out the credit card operations till the November 2015 deadline. After this date, JP Morgan (NYSE:JPM) will hold no obligation to Sears Canada (TOR:CA:SCC).

In the wake of several new retailers entering into the market, Sears Canada (TOR:CA:SCC) has been hit quite badly by this intense competition. However, it still has several global locations for its stores, even after closing several of its outlets in view of the fiscal losses it is coming across for past years. Sears Canada (TOR:CA:SCC) has been forced to close down several of its integral global locations in top malls around the world; it is still left with 176 operational stores and 222 stores running in hometown, alone, while there are several functional locations in Canada.

According to the latest figures posted by Sears Canada (TOR:CA:SCC), an operating loss of C$187.8 million has been reported for the year 2013. JP Morgan (NYSE:JPM) initiated the deal with the retailer in 2005. The terms of agreement awarded a deal that enabled Sears Canada (TOR:CA:SCC) to pay dividend to investors. In addition, JP Morgan (NYSE:JPM) paid the marketing and other fees to Sears Canada (TOR:CA:SCC) on a yearly basis.

According to statements presented by analysts, the importance of turnover impact of credit has escalated by many folds, and negating the banks move to cut the retailer short of the deal, Sears Canada (TOR:CA:SCC) will continue to lose more money if it doesn’t come up with a replacement plan, and that to, sooner than later.

However, Sears Canada (TOR:CA:SCC) has had a positive note on Monday with its shares soaring up 1.29% at C$11.

According to analysts, due to this 10 year deal, Sears Canada (TOR:CA:SCC) ended up with annual earnings of C$60 million.

JP Morgan (NYSE:JPM), even though pulled out of the agreement, has shown their willingness to work with the retailer to find the best solution for both parties involved. Sears Canada (TOR:CA:SCC) is also positive that it will work towards finding the best way forward to deal with the customers that use their credit cards.

Both the parties have agreed to explore options of selling the credit card portfolio to a selected third party. In the event of this sale, JP Morgan (NYSE:JPM) will pay Sears Canada (TOR:CA:SCC) nearly C$ 174 million, under a set of conditions, that havnt been released yet.

The retailer seems to be going through a rough patch with the severe market competition and its recent break up with the American bank.