Lloyds Banking Group has agreed to buy Bank of America’s MBNA credit-card business in the UK for £1.9bn ($2.4bn), targeting expansion in the consumer finance market.

Lloyds executives are keen on growing the bank’s credit card division due to its stable earnings and low operating costs. The credit card market also has some room to grow, according to GlobalData research (see chart below).


Antonio Horta-Osorio, Lloyds group chief exec, 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.

Why now?

This deal has been in the works for some time and Bank of America has been looking to exit its non-domestic markets since the financial crisis and has already sold off the majority of its assets in Europe.

The deal has had to be worked out around MBNA’s exposure to the payment protection insurance (PPI) mis-selling scandal that has dragged on retail bank earnings in the UK for some years.

There was never any doubt over the potential of the business and the market, however.

Here’s what the UK credit card market is expected to do in the coming few years.

Clearly there is plenty of opportunity for Lloyds, and others, to grow despite warnings from the Bank of England over the high level of debt in UK households.

Mark Carney, the governor of the Bank of England, in November warned that consumers were borrowing more on their credit cards and other unsecured debt. Figures from the Bank showed that credit card lending had climbed to record levels, up by £571m in October.

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The devil is in the detail

Despite MBNA’s exposure to the PPI scandal — which has put off the likes of Santander UK and HSBC — MBNA will add an expected £650m a year to Lloyd’s revenue, equivalent to a four percent increase.


The acquisition of MBNA, which has an 11 percent share of the UK credit card market, will almost double Lloyds’s current share to about 26 percent. Lloyds — just under seven percent of which is still controlled by the British government — said it will keep the MBNA brand separate from its own card offering, likely to go some way to soothing regulator concerns over competition.

As part of the deal, which will go some way to alleviate the fears of shareholders, Lloyds negotiated a £240m cap on MBNA’s future payouts for PPI mis-selling. The deal is expected to be completed in the first half of 2017.

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