Lloyds Banking Group Plc agreed to acquire British credit card issuer MBNA Ltd. from FIA Jersey Holdings Ltd., a wholly owned subsidiary of Bank of America Corp., for a cash consideration of £1.9 billion.
Lloyds said the purchase price includes approximately £800 million of acquired equity and assumes £240 million for future payment protection insurance claims, with Lloyds' exposure to PPI liability capped at this amount. The Financial Times had reported in November that Lloyds had initially pulled out of the race to acquire MBNA due to BofA's unwillingness to indemnify bidders for future costs related to PPI misselling.
The acquisition of the business, which comprises gross assets of approximately £7 billion, is expected to complete by the end of the first half of 2017, subject to competition and regulatory approval. The gross assets being acquired posted first-half after-tax profit of £123 million.
The transaction will be funded through organic capital generation and is currently expected to use approximately 80 basis points of Lloyds' common equity Tier 1 capital.
The deal is expected to deliver Lloyds an underlying return on investment that exceeds cost of equity in the first full year and increases to approximately 17% in the second full year following the acquisition, as well as about 3% and 5% statutory EPS accretion in the first and second full years following the acquisition.
The acquisition will also boost Lloyds' group revenues by £650 million per year and enhance group net interest margin by approximately 10 basis points per year. The group also sees a significant opportunity for cost synergies, currently anticipated at about £100 million run rate per year within two years of MBNA's integration, representing about 30% of MBNA's cost base in 2015.
Upon completion of the acquisition, Lloyds' share in the U.K. credit card market will increase to about 26% from approximately 15%. The MBNA brand will be maintained as a challenger brand, Lloyds said.
UBS is acting as financial adviser to Lloyds.