Lloyds Banking Group agreed to buy Bank of America’s MBNA credit-card business in the UK for £1.9 billion (€2.26bn) in cash as the British lender seeks to expand in consumer finance.
The acquisition of MBNA, which has about £7 billion of assets, will add £650 million a year to Lloyd’s revenue, equivalent to a 4 per cent increase, according to a statement Tuesday. As part of the deal, the London-based bank negotiated a £240 million cap on MBNA’s future payouts for the payment-protection insurance scandal.
“The MBNA brand and portfolio are a good fit with our existing card business,” Lloyds chief executive Antonio Horta-Osorio said. “The acquisition, funded through strong internal capital generation, increases our participation in the expanding UK credit card market with a multi-brand strategy.”
Lloyds executives have earmarked the bank’s credit card division for expansion as the business provides stable earnings combined with low operating costs. The acquisition of MBNA, which has an 11 per cent share of the UK market, will almost double Lloyds’s current share to about 26 per cent.
Lloyds said it will keep the MBNA brand separate from its own card offering. “A deal would be a good use of excess capital and the terms of today’s announcement looks attractive,” Joseph Dickerson, an analyst at Jefferies International Ltd, said. “We estimate MBNA UK will lift the contribution of consumer finance business to 21 per cent of group pretax earnings, up from the current 17 percent, thereby reducing reliance on UK mortgages.”
PPI liabilities
Whether the buyer would assume PPI liabilities was a key part of discussions, people familiar with the talks had said. MBNA had a £244 million regulatory provision set aside for PPI redress as of the end of last year, according to its annual report.
Britain's largest mortgage lender was said to be up against private-equity firms including Cerberus Capital Management and Advent International in the MBNA bidding process. Bank of America bought MBNA in 2006 for $35 billion. As borrower defaults rose and regulations reduced the industry's prospects, it twice wrote down the card unit's value, sold MBNA businesses in Canada and Ireland and folded the US business into its own operations. Some of the UK card assets were sold to Richard Branson's Virgin Money in 2013.
Reuters
