Lloyds Bank buys credit card company MBNA from Bank of America for £1.9bn

Part taxpayer-owned lender says deal will boost revenues by £650m

Ben Woods
Tuesday 20 December 2016 11:49 GMT
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Lloyds is seeking to add to its UK credit card business
Lloyds is seeking to add to its UK credit card business

Lloyds Banking Group has swooped for consumer credit card business MBNA from Bank of America in a £1.9bn deal.

The banking giant said MBNA, which holds assets of £7bn, would deliver strong financial returns and bolster its position in the UK prime credit card market.

Antonio Horta Osorio, group chief executive of Lloyds, said MBNA was a “good fit” with the bank’s current credit card business.

He added: “The acquisition, funded through strong internal capital generation, increases our participation in the expanding UK credit card market with a multi-brand strategy and advances our strategic aim to deliver sustainable growth as a UK focused retail and commercial bank.”

The deal will provide a £650m-a-year boost to Lloyds’ group revenues, while enhancing the bank’s group net interest margin by around 10 basis points per year.

Once it is given the green light by regulators, the tie-up is expected to be complete by the end of the first half of 2017.

The move will see Lloyds buy MBNA from Bank of America subsidiary FIA Jersey Holdings Limited, delivering cost savings of about £100m per year within two years.

The savings would represent approximately 30 per cent of MBNA’s cost base in 2015, Lloyds said.

The announcement comes after Lloyds took another step towards privatisation last week when the Government announced it had sold off a further chunk of the bank, taking its stake down to less than 7 per cent.

It means more than £17.5bn has been returned to Government coffers since the lender’s £20.3bn bailout at the height of the financial crisis.

In October, Lloyds said it had set aside another £1bn to meet compensation claims for the mis-selling of payment protection insurance (PPI) as it attempts to draw a line under the scandal.

On the MBNA deal, the bank said its purchase price includes £240m for future PPI claims, adding that its “exposure of PPI liability” would be “capped at this amount”.

MBNA, which booked post-tax profits of £123m in first half of 2016, will be kept as a challenger brand and help Lloyds strengthen its credit cards market share from 15 per cent to 26 per cent.

The bank said its underlying and statutory performance was strong and it remains on track to deliver “a progressive and sustainable ordinary dividend in 2016”.

Lloyds announced in October that statutory pre-tax profits had fallen 15 per cent year on year in the third quarter at £811m, as it revealed more provisions for PPI mis-selling.

Underlying profit for the third quarter came in 3 per cent down at just under £2bn.

PA

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