Lloyds strikes deal with Bank of America for MBNA credit card business
Lloyds Banking Group has struck a £1.9 billion deal with Bank of America to buy UK credit card business MBNA in its first major acquisition since the financial crisis.
The banking giant said the firm would deliver strong financial returns and increase its share of the credit cards market from 15% to 26%.
MBNA, which has more than five million card holders and assets of around £7 billion, booked post-tax profits of £123 million in first half of 2016.
The tie-up is set to be complete in the first half of next year, if it wins the backing of regulators.
Antonio Horta-Osorio, group chief executive of Lloyds, said MBNA was a "good fit" with the bank's current credit card business.
"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," he added.
The deal will provide a £650 million-a-year boost to Lloyds' group revenues, while delivering cost savings of around £100 million within two years.
Lloyds said the credit card firm will remain a market challenger once the move to buy the business from Bank of America subsidiary FIA Jersey Holdings Limited is complete.
It comes after Lloyds took another step towards privatisation last week when the Government announced it had sold off a further chunk of the bank, taking its stake down to less than 7%.
It means m ore than £17.5 billion has been returned to Government coffers since the lender's £20.3 billion bailout at the height of the financial crisis.
In October, Lloyds said it had set aside another £1 billion to meet compensation claims for the mis-selling of payment protection insurance (PPI) as it attempts to draw a line under the scandal.
On the MBNA deal, the bank said its purchase price includes £240 million for future PPI claims, adding that its "exposure of PPI liability" would be "capped at this amount".
Diarmaid Sheridan, analyst at Davy Research, said the deal should not come as a surprise given the "significant level of speculation regarding the transaction".
He added: "Nonetheless, this is a positive development, providing Lloyds Banking Group with additional scale in a targeted growth area with an attractive return on investment.
"The acquisition premium of 15% reflects the fact that MBNA is a mature business with significant cost synergies to emerge in the coming years."
The bank said its underlying and statutory performance was strong and it remains on track to deliver " a progressive and sustainable ordinary dividend in 2016".
Lloyds announced in October that statutory pre-tax profits had fallen 15% year on year in the third quarter at £811 million as it revealed more provisions for PPI mis-selling.