MBNA acquisition is banking giant's first major move since financial crisis
Companies: Lloyds Banking Group plc
Lloyds Banking Group is to acquire UK credit card provider MBNA for £1.9bn in its first major acquisition since the financial crisis.
The move, which will increase Lloyd's share of the UK consumer credit market to 26%, is expected to complete by the end of the first half of 2017, and is estimated to deliver strong financial returns:
“an underlying Return on Investment that exceeds Cost of Equity in the first full year and increases to c.17% in the second full year following the acquisition"
"c.3% and c.5% statutory EPS accretion in the first and second full years following the acquisition"
MBNA will add £650m to Group revenues, a 4% increase, and will enhance its net interest margin by 10bps (0.01%). It has underlying assets of c.£7bn, and Lloyds says it will be able to find new cost synergies of roughly £100m within 2 years, equivalent to 30% of MBNA's cost base.
MBNA
- 7 million customers
- Gross value of £7bn
- Is the official card provider behind several major football clubs' branded cards
- Has a £240m PPI bill (adding to Lloyds' PPI liability of c.£17bn)
- Made post-tax profit of £166m for FY15
The Group believes MBNA's diversified distribution model and data analytics capabilities would be complementary to Lloyd's existing capabilities, providing opportunities for growth and greater customer service.
The MBNA brand, which Lloyds say has digital strength and is well-recognised, will be maintained as a "challenger brand" to enhance its customer offering.
A key point of the deal is the capped exposure to MBNA's PPI claims, which was agreed at £240m. This adds to Lloyd's existing £17bn exposure to PPI claims, the largest liability of any UK bank.
CEO António Horta-Osório said the acquisition would increase Lloyds' participation in the expanding UK credit card market and would deliver significant value to shareholders:
"...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... Our low cost to income ratio and proven integration capabilities will deliver significant synergies and value to our shareholders."
Shares in Lloyds opened up 1% in early trading.
