The British bank Lloyds Bank Group announced that it is planning to buy the MBNA UK credit card from the Bank of America. The deal is set to be closed around 2017 first quarter at 1.9 billion pounds or $2.4 billion. The bank plans to acquire the credit card business to branch out and increase their profit and reduce its reliance on the mortgage lending.
The deal that is due somewhere around next year’s first quarter includes 800 million pounds of acquired equity and assumes 240 million pounds for future claims for mis-sold load assurance. The biggest Britain’s mortgage lender will be having its first acquisition with the current MBNA deal since it is bailed out of the 2007 -09 crisis.
According to Lloyd’s group chief executive Antonio Horta-Osorio, the MBNA deal is a good fit fo the company along with the current credit card business, and that the acquisition was funded through strong internal capital generation, increases the banks participation in the expanding UK credit card market with a multi-brand strategy and advances in their strategic aim to deliver a more sustainable growth as a UK focused retail and commercial bank.
Lloyd’s bank is 7 percent state-owned, and the MBNA which hold assets of around 7 billion pounds will certainly increase the bank’s revenues by 650 million pounds in a year. Also, Lloyd’s share of the UK credit card market will see an increase from 15 percent to 26 percent after the deal commenced. The bank’s Horta-Osorio said that the MBNA as a company and its portfolio is easily a good addition to them; and that they will continue to provide their customers with excellent service and value even after the acquisition.
Lloyd’s Future with MBNA
Analysts worries about the Lloyd has acquired along with MBNA, they warn the bank with the Britain’s risk of uncertain economic outlook after the country decided to leave the European Union last June. Gary Greenwood of Shore Capital reported that Lloyd’s will see to double their exposure in the credit card industry at a particular benign point in the bad debt cycle and ahead of a potential slow-down once the term of the UK’s decision to leave EU is reached.
Lloyd said in a statement, that the banks see a positive future as they are confident of being able to deliver a progressive and sustainable ordinary dividend in 2016, but Shore Capital’s Greenwood noted that the bank might want to reconsider its special dividend for the end of the year in order to fund the deal.
The acquisition will contribute to an increase in the consumer finance business to at least 21 percent of the bank’s pre-tax profits from 17 percent and also reduce the bank’s reliance on the UK mortgage business, according to recent reports. MBNA on the other hand, made after-tax profits of 123 million pounds in the first half of 2016, would add 650 million pounds a year to group revenues and adding the deal could shave 100 million pounds a year from MBNA’s cost base.
Be informed and be well prepared for different price hikes and global economic changes, visit and subscribe to Options12 for your everyday fix. We also do online trading, stock markets, commodities, and economic news on a daily basis.