Lloyds banks on credit
card growth with $2.4 billion MBNA buy
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[December 20, 2016]
By Simon Jessop and Lawrence White
LONDON (Reuters) - Lloyds Banking Group <LLOY.L> is buying the MBNA UK
credit card business from Bank of America <BAC.N> for 1.9 billion pounds
($2.4 billion) in an effort to increase profit and reduce its reliance
on mortgage lending.
The move represents the first major acquisition for Britain's biggest
mortgage lender, which is part-owned by the government, since it was
bailed out during the 2007-09 crisis.
Lloyds said the deal, which is expected to close in the first half of
2017, includes around 800 million pounds of acquired equity and assumes
240 million pounds for future claims for mis-sold loan insurance (PPI).
Analysts said the move represented a good use of the bank's excess cash,
but warned it carried some risks given Britain's uncertain economic
outlook following the country's vote to leave the European Union in
"Lloyds will be broadly doubling up its exposure to credit cards at a
particularly benign point in the bad debt cycle and ahead of a potential
slow-down... once the terms of the UK's exit from the EU are reached,"
Gary Greenwood of Shore Capital said.
The British lender said it would pay through cash generated by its
ordinary business operations.
"The acquisition... 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," António Horta-Osório, Group Chief Executive, said.
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People walk past a branch
of Lloyds Bank on Oxford Street in London, Britain July 28, 2016.
REUTERS/Peter Nicholls/File Photo
said it was confident of being able to deliver a progressive and sustainable
ordinary dividend in 2016, but Greenwood said the bank might reconsider its
special dividend promised for the end of the year in order to fund the deal.
The deal will lift the contribution of the consumer finance business to 21
percent of the bank's pre-tax profits from 17 percent, reducing Lloyds' reliance
on the UK mortgage business, Joseph Dickerson of Jefferies said.
MBNA, which made after-tax profits of 123 million pounds in the first half of
2016, would add 650 million pounds a year to group revenues, Lloyds said, adding
the deal could shave 100 million pounds a year from MBNA's cost base.
(Editing by Alexander Smith)
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