Lloyds to buy MBNA to push credit card busi­ness

Kuwait Times - - BUSINESS -

Lloyds Bank­ing Group is buy­ing the MBNA UK credit card busi­ness from Bank of Amer­ica 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 June.

“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,” An­tÛnio Horta-OsÛrio, Group Chief Ex­ec­u­tive, said. Lloyds 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. — Reuters

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