LONDON (BLOOMBERG) - Lloyds Banking Group agreed to buy Bank of America Corp's MBNA credit-card business in the United Kingdom for 1.9 billion pounds (S$3.47 billion) in cash, marking its first major deal since being rescued by British taxpayers eight years ago.
The acquisition of MBNA, which has about 7 billion pounds of assets, will add 650 million pounds a year to Lloyd's revenue, equivalent to a 4 per cent increase, according to a statement Tuesday. As part of the deal, the bank negotiated a 240 million-pound 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 officer 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 slice of the UK market, will almost double Lloyds's current share to about 26 per cent and raises it into the same league as Barclays, which controls about 27 per cent of the market through Barclaycard. Lloyds said it will keep the MBNA brand separate from its own card offering.
The stock rose 0.8 per cent to 63.05 pence at 8:32 a.m. in London, compared with a 0.1 per cent average fall for banks on the UK's FTSE 350 index.
"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, said in an e-mail.
"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 per cent, thereby reducing reliance on UK mortgages."
Lloyds hasn't made a major acquisition since its ill-fated takeover of HBOS Plc during the 2008 financial crisis left the bank in need of a bailout. The government still owns 6.9 per cent of Lloyds after selling down its stake.
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-pound regulatory provision set aside for PPI redress as of the end of last year, according to its annual report. Lloyds has taken more than 17 billion pounds in charges for PPI claims over the past five years, more than any other major British lender.
The purchase is expected to complete by the end of the first half of next year.