The Strategist

Lloyds to acquire credit card issuer MBNA

12/20/2016 - 14:33

On Tuesday, Lloyds Banking Group stated its intention to purchase UK credit business of Bank of America MBNA for 1.9 billion pounds ($ 2.35 billion).

This is the first major acquisition of the British bank since its bailout during the global recession.

Lloyds, which is still partly owned by the UK government, is trying to expand its credit cards business in order to diversify its core mortgage business and increase profits.

Bank of America decided to sell its unit with a client portfolio of about 5 million customers, and loan portfolio of about 7 billion pounds. As early as 2011, the institution began to get rid of loan companies to strengthen their own balance.

The deal could be another sign of Lloyds’s recovery. The bank has been prohibited from acquiring new assets during period state aid in the financial crisis. The British government is now looking for a buyer for its remaining 6.9% - stake in the bank.

However, some analysts have questioned acquisition of the credit card business on the background of uncertainty due to the British decision to withdraw from the EU. 

"The risk cannot be ignored", - said Gary Greenwood, an analyst at Shore Capital, adding that the deal is likely to increase Lloyds’ share in the UK credit card market from 15% to 26%.

Lloyds itself expects that the acquisition will increase the group’s income at 650 million pounds per year, and will improve the net interest margin by 0.1 percentage points. Despite the transaction’s cost, Lloyds is waiting for an opportunity to continue progressive dividend payments.

In addition, it is expected that the transaction will be closed by the end of the first half of 2017, taking into account need to obtain regulatory approvals. Lloyds is also considering other potential acquisitions, including in the field of insurance.

Earlier, the UK government has reduced its stake in Lloyds Banking Group. The government is trying to fully return the bank in private ownership within the next year.

Company UK Financial Investments Limited (UKFI), which manages the government's stake in the bank, resumed sale of shares in October. The sale had been suspended almost a year ago due to market turbulence. The government's stake in Lloyds declined by about 1 percentage point to 6.93%.

20,5 billion pounds of sterling ($ 26 billion) went from the state budget to save Lloyds in the 2007-2009 crisis years. The state entered the bank's capital and received 43% of the shares.