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Bank of America Set to Acquire MBNA in $35 Billion Deal

Posted on: Friday, 1 July 2005, 00:00 CDT

Jul. 1--Bank of America Corp. said it plans to acquire MBNA Corp. in a $35 billion deal that would turn the nation's third-largest bank into one of the world's largest credit card issuers.

The bank's purchase of MBNA, the nation's leading independent credit card issuer, would double its card base to 40 million, giving it $143 billion in card balances.

"For years, I have been impressed with the sales capabilities of MBNA," Bank of America Chairman and CEO Ken Lewis told industry analysts after the deal was announced. "I see them as a selling machine. ... We have the franchises and they have marketing savvy."

The Charlotte, N.C., banking giant would surpass American Express in the credit card industry and become a top rival to Citigroup Inc. and JPMorgan Chase & Co.

Bank of America is the second-largest bank in the Washington area in terms of deposits, with $12.9 billion. It is surpassed only by Wachovia Bank, which holds $16.2 billion in deposits of Washington-area customers.

Bank of America operates 172 branch banks in the area.

Rising interest rates are hurting profits of credit card companies, forcing them to merge with banks so their combined assets will keep credit card rates competitive.

"Credit card companies are realizing they may not be able to make it just as a stand-alone," said Peter Boockvar, equity strategist at Miller Tabak & Co.

Wachovia has been checking out credit card company acquisition opportunities, leading to speculation it would make a bid for Capital One Financial Corp., based in Falls Church.

"It gives Wachovia tremendous incentive to go out and make a deal with Capital One or [another issuer.] They can't have Bank of America running their credit card portfolio," said Dick Bove, an analyst with New York-based Punk Ziegel & Co.

MBNA earned $2.7 billion on revenue of $12.3 billion in 2004, but has seen its annual growth slow from 10 percent to around 2 percent in recent years.

It is the founder of the affinity card, which lets consumers use credit cards sponsored by their favorite organizations, such as airlines that give frequent-flier miles for each credit card purchase.

The Wilmington, Del., company has marketing arrangements with about 5,000 organizations worldwide.

The deal, which still requires shareholder and regulatory approval, comes two weeks after the Federal Reserve cleared the way for financial services powerhouse J.P. Morgan Chase to combine with Chicago-based Bank One Corp., forming the nation's second-largest bank with more than $1 trillion in assets.

Bank of America has about 10 percent of U.S. deposits, the maximum allowed by government regulators. The bank plans to lay off about 6,000 employees, largely because of duplicated services, but expects to save $850 million in reduced payroll.

Some consumer watchdogs warned about risks such a large deal represents for Bank of America, including making it a high-priority target for identity thieves.

"It's a lot to manage," said Marlys Harris, finance editor for Consumer Reports magazine. "Assuming their security is as good as everyone else's, that's not good enough. Then more people will be subject to theft. Maybe the economies of scale will allow them to up their security to the point where for all practical purposes, they're impregnable."

A spokesman for Sen. Mark Pryor, Arkansas Democrat and ranking member of the Commerce, Science and Transportation consumer affairs, product safety and insurance subcommittee, said: "In case of a security breach, the larger the database, the more people who could be at risk of having their information stolen."

About 72 percent of American families use credit cards, according to the Federal Reserve Board.

Bank of America said the MBNA purchase combines complementary services of the companies and will allow it to expand its global network.

This article is based in part on wire-service reports.

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Source: The Washington Times

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