Lloyds Acquire MBNA in £1.9bn Deal

Posted by Tom Magor in Banking on 20 December 2016 - Tom is a Senior Credit Analyst at checkmyfile.

Signalling a return to strength and in the organisation’s first acquisition since the 2008 global financial crisis when they purchased HBOS, Lloyds Bank is to buy credit card firm MBNA from Bank of America in a £1.9bn deal.

It’s anticipated that the deal will be completed in early 2017. The £1.9bn cost assumes £240m to cover claims for the historic mis-selling of payment protection insurance (PPI).

Despite being nearly 7% state owned, Lloyds expect the MBNA business model to represent a good fit within the existing organisation. This is supported by Antonio Horta-Osorio of Lloyds who says, “The MBNA brand and portfolio are a good fit with our existing card business and we will focus on providing its customers with excellent service and value.”

As it stands, MBNA primarily operates online through mobile. The acquisition of MBNA, which holds assets of £7bn, is expected to increase annual revenues by £650m. Furthermore, the group’s share of the UK credit card market is expected to rise from 15% to 26%.

Lloyds says that MBNA will retain its brand identity after the completion of the deal, with customers continuing to use their existing cards. A Lloyds spokesman has also confirmed that MBNA would continue to operate using separate rates.

While Lloyds may have ultimately sealed the deal, there were several alternative parties who expressed an interest in the business including Santander and Cerberus, the private equity firm.

Lloyds anticipate that the MBNA acquisition will represent a ‘significant opportunity for cost synergies’, with annual savings expected to amount to £100m, approximately 30% of total costs in 2015.

The banking group has also been implementing a restructuring plan in recent months, with the loss of more than 1,200 jobs confirmed in October. However, it was originally thought that total job losses could reach 9,000 before the government provided a financial rescue package, acquiring a 43% stake in the process. Over the past 3 years, this stake has steadily reduced as shares have been sold off to investors.

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