First Annapolis Consulting Inc.'s success can be measured by the size of its offices.
Shortly after Frederick A. White and William J. Westervelt Jr. quit their jobs to start the company in early 1991, they worked out of a cramped 10-foot-by-10-foot bedroom office, made smaller by the two computers, laser printer, copy machine and a couple of desks. They worked in the din from a constantly whirring large fan.
Today, they walk on soft carpeting and gaze at brightly colored paintings in spacious offices in Linthicum that are more than sufficient for the company's 80 employees and the 20 more that will be hired by the end of the year.
"We are looking to make it a lot larger than this," said White, 47, president of First Annapolis, a privately held financial services consulting and investment banking firm.
Striking out on their own in 1991 was a risky move: The country was mired in recession, and the banking industry -- one of their primary markets -- was struggling, to put it mildly.
But First Annapolis flourished. Now, White and Westervelt have taken another step to expand the company even further, a move that some say is a gamble.
Eight months ago, First Annapolis surprised the industry when it teamed up with three large banks to start a credit card company -- Partners First Holdings LLC.
It was a stunning move for several reasons: Competition in the $854 billion credit card business is cutthroat. And the industry is already dominated by large issuers such as Wilmington-based MBNA Corp., Dallas-based First USA Inc. and New York's Citicorp, which have driven regional banks out of the business.
There is no shortage of plastic, either. The average person carries three to four bank cards, not including gasoline or store credit cards. And the business isn't without its problems: credit card delinquencies have reached about $22 billion, with the industry writing off about $25 billion annually, largely due to soaring personal bankruptcies.
"This industry is not the gravy train it used to be, it has slowed down considerably," said Robert B. McKinley, president of CardWeb Inc., a Gettysburg, Pa.-based credit card research firm. "I think they have a formidable task competing in the marketplace. I know they [Partners First] have grandiose plans of being a multibillion portfolio, and they may get there, but they have to get the economies of scale to really compete."
What makes the business so tough is that the top 10 credit card companies control about 60 percent of the business, and they use their size to their advantage.
The largest and most efficient credit card issuers spend as little as $50 to generate a new customer, while smaller companies often must spend three times that amount, McKinley said.
"It is only going to be tougher with the consolidation we are seeing in the industry," McKinley said. "It is just hard to be in the middle of the business."
White and Westervelt, who is a managing director of First Annapolis, are cognizant of the risks, but they think they have an opportunity to make Partners First flourish as the industry consolidates.
One reason they are confident is that Partners First is backed by several large banks: BankBoston Corp., Bank of Montreal and Harris Bank, the Bank of Montreal's Chicago-based subsidiary.
Bank of Montreal has kicked in $115 million in seed capital, and the two others have given the company large credit card portfolios and more than 1 million customers. BankBoston and Bank of Montreal also have taken sizable stakes in the new venture.
While the banks have contributed the raw resources, First Annapolis has added the brain power -- a staff of 55 people who specialize in marketing credit cards and conducting sophisticated analysis on consumer spending habits.
It owns 12 percent of the new company, which is run by John R. Soderlund, who was a managing director of First Annapolis, and now is president and chief executive of Partners First.
A fast start
In the past eight months, the fledgling credit card company has taken off like a shot.
It already has $2.5 billion in assets on its books, it has issued nearly 2 million cards, and it employs 110 people in Linthicum and Boston.
"We are amassing the scale," said Soderlund, 40. "I think there is room to run. There is an opportunity for someone who is a little more innovative and a little more creative."
Soderlund sees Partners First expanding by tapping into middle class borrowers. He estimates that credit card loans will grow to $5 billion in 18 months, and possibly to $10 billion in three years.
One way to get there is by buying credit card portfolios as banks get out of the business. Just last month, Partners First bought $190 million in credit card receivables from Comerica Bank-Midwest in Ohio.
The formation of Partners First is a natural progression of First Annapolis, which specializes in strategic planning, mergers and