Lloyds Banking Group has announced, December 20,2016, that it has agreed to acquire MBNA Ltd (MBNA), a UK consumer credit card business, from the Bank of America. The group said that ,”the transaction is consistent with the Group’s stated strategic ambitions of growing in Consumer Finance and will enable the Group to enhance its position and offering within the UK prime credit card market.
The acquired MBNA business, which comprises gross assets of c£7bn, is expected to deliver strong financial returns and create significant value for shareholders, Lloyds said. The transaction is expected to be completed by the end of the first half of 2017, subject to the receipt of competition and regulatory approval.
Lloyds projects that it will deliver:an underlying Return on Investment that exceeds Cost of Equity in the first full year and increases to c17% in the second full year following the acquisition.c3% and c5% statutory EPS accretion in the first and second full years following the acquisition.
The transaction will deliver a £650m per annum (c.4%) increase to Group revenues and will enhance Group net interest margin by c10bps per annum.
There is also significant opportunity for cost synergies currently expected at c£100m run rate per annum within 2 years, representing c30% of the 2015 MBNA cost base In the first half of 2016.
The gross assets acquired delivered post-tax profits of £123m(1)and are being acquired for cash consideration of £1.9bn.
The purchase price includes c.£0.8bn of acquired equity and assumes £240m for future PPI claims with the Group’s exposure to PPI liability capped at this amount.
MBNA is a UK credit card business with a high quality customer base founded upon sound underwriting principles and credit management, which aligns well with the Group’s strategy to deliver sustainable growth through a multi-brand strategy. The MBNA brand will be maintained as a challenger brand further enhancing our customer offering. MBNA’s diversified distribution model, along with its data analytics capability, digital strength and well recognised brand, will be complementary to the Group’s existing capabilities and provide further opportunities for growth and delivering excellent customer service. On completion of the transaction, the Group’s market share in credit cards will increase from c.15% to c.26%.
The transaction is being funded through organic capital generation and is currently expected to utilize approximately 80 basis points of Common Equity Tier 1 (CET1) capital, which through this acquisition will further enhance future earnings and capital generation.
The Group continues to deliver strong underlying and statutory performance with strong capital generation. As a result, the Group remains confident in delivering a progressive and sustainable ordinary divide and in 2016 and continues to target a payout ratio of at least 50 per cent of sustainable earnings over the medium term.
In line with our policy, the Group’s approach to surplus capital distribution at the end of the year will give due consideration to the Board’s view of the
current level of capital required to meet regulatory requirements, cover uncertainties and grow the business, which will include the capital impact of this transaction.
Commenting on the transaction, António Horta-Osório, Group Chief Executive, said: “The acquisition, funded through strong internal capital generation, 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. The MBNA brand and portfolio are a good fit with our existing card business and we will focus on providing its customers with excellent service and value. Our low cost to income ratio and proven integration capabilities will deliver significant synergies and value to our shareholders.
UBS is acting as financial adviser for Lloyds Banking Group on this transaction.
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