Bank of America to acquire MBNA: Deal creates nation's largest credit card company

New Jersey Business, Sep 01, 2005

The third major transaction between a bank and credit-card issuer this year, North Carolina-based Bank of America, the country's largest domestic bank, makes a definitive agreement to purchase Delaware-based MBNA Corporation, a leading provider of credit card and payment products. Expected to close in the fourth quarter of 2005, the $35-billion deal will allow the bank to deepen customer relationships by delivering innovative deposit, lending and investment products and services to MBNA's customer base. Bank of America will become one of the leading worldwide payment services companies and issuers of credit, debit and prepaid cards based on total purchase volume - making it the fourth most profitable company in the world.

"[The deal] is not only about the creation of one of the world's largest card providers . . .," says Bank of America Chairman and CEO Kenneth D. Lewis. "It's really a much larger story about two companies with complementary strengths. The result will be the country's top retailer of financial services with the size and scale to drive distribution and marketing efficiencies."

According to analysts cited in The Star Ledger the deal is an appropriate move for Bank of America, as it was looking for a way to fill a strategic gap in its consumer banking tool kit credit cards - and to deploy its cash. The bank already has its own credit-card business, but the acquisition of MBNA will help improve one of its fastest growing businesses and provide significant resources for future growth, executives say.

"This acquisition makes strategic sense for our combined customers and shareholders. It provides us access to MBNA's attractive portfolio as well as its leading product, service and marketing capabilities," Lewis adds.

Bruce L. Hammonds, CEO and president of MBNA, will become CEO and president of Bank of America Card Services and report to Liam E. McGee, president of Bank of America Global Consumer and Small Business Banking. Hammonds will also participate in Bank of America's Risk & Capital Committee, which guides the company's strategic direction.

According to Hammonds, "[The merger] will give the combined company access to new marketing channels, customers, products and opportunities for further expansion." With more than 16,700 ATMs and 13 million active online banking users, Bank of America currently serves 33 million consumer relationships. In addition to its existing $143 billion in managed outstanding balances and 40 million active accounts, the bank will now add more than 20 million new customer accounts while establishing affinity relationships with more than 5,000 financial institutions and partner organizations. Bank of America has an estimated 3,500 employees in the state.

Though expected to become the largest credit-card operation in the nation, the merger may face potential complications. MBNA handles $17 billion in loans for banks that directly compete with Bank of America, of which some $6.5 billion loans come from Wachovia. The MBNA transaction is also expected to result in a 7 percent revenue loss - $175 million in 2006 and $215 million in 2007 - as a result of such deal-related customer attribution. Additionally, the combined firms will cut 6,000 jobs to contribute to a range of cost reductions intended to respond to the bank's overall expense efficiencies. MBNA employs more than 1,000 people at its offices and call centers in Newark, but analysts do not expect significant layoffs in the city.