The £1.9bn deal agreed with MBNA owner Bank of America Merrill Lynch brings five million new customers into the Lloyds fold, and raises its market share to 26%.
The account balances held by MBNA total over £7 billion. Lloyds estimates the transaction will result in £650m per annum in additional revenue.
Lloyds chief executive António Horta-Osório, 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.”
The upward momentum in Lloyd shares helped pull the FTSE 100 up as well, with the index edging 11 points up to sit at 7028 by late morning.
‘Lloyds is backing itself despite the uncertain economic outlook, and this deal will mean the bank has now cornered a quarter of the UK credit card market,” noted Laith Khalaf, senior analyst at Hargreaves Lansdown. This does mean a special dividend for 2016 has become less likely, but at the same time the additional earnings from the credit card book bolster the dividend-paying prospects of the bank in years to come.
The acquisition will allow Lloyds to boost its net interest margin, which is pretty valuable against a backdrop of such low interest rates,” he added. “The deal owes some thanks to the FCA deadline on PPI claims, which has given some measure of certainty to the level of compensation MBNA will have to pay out, providing both parties with a more solid platform for negotiation.’
“Macro drivers are fast disappearing, while corporate news is also fairly light, so markets may struggle to find the ground on which to build a strong rally,” said Chris Beauchamp, chief market analyst at IG. “Lloyds has taken an ambitious step to bolster its presence in consumer finance through the acquisition of MBNA; it may seem like an odd step for a bank that is still part-owned by the taxpayer, but those eyeing up Lloyds as a potential source of dividend income will welcome the incorporation of a business that is able to charge higher rates for credit cards than Lloyds has been able to.”
