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Bank of America Closes on MBNA Deal, Foresees Up to 6,000 Jobs Lost Nationally

Posted on: Monday, 2 January 2006, 12:00 CST

By Tom Groening, Bangor Daily News, Maine, Bangor Daily News, Maine

Jan. 2--CHARLOTTE, N.C. -- Bank of America completed its purchase Sunday of MBNA Corp., creating the largest credit card issuer in the U.S. as measured by balances.

With the $35 billion acquisition of MBNA, which had been the second-largest credit card lender next to Citicorp, the new Bank of America's card services division has more than 40 million active accounts and nearly $140 billion in managed balances.

MBNA operates in Maine in Fort Kent, Presque Isle, Orono, Belfast, Farmington, Brunswick and Portland, employing 1,900 in its Maine headquarters in Belfast and 1,100 in mostly part-time positions in the other communities. MBNA is based in Wilmington, Del., but expanded to Maine in 1993, opening offices first in Camden.

With the completed takeover, Bank of America officials expect to cut 6,000 jobs from the combined companies. The cuts will come in areas of duplication, such as technology, legal and personnel departments.

Kenneth Lewis, chairman and chief executive officer of Bank of America, cheered the purchase of MBNA for what it can do for Bank of America.

"The combination of Bank of America's distribution platform and customer base with MBNA's products, affinity relationships and marketing expertise creates significant opportunities for our combined company," Lewis said in a statement released Sunday.

MBNA now employs 25,000 around the United States and in Canada, the United Kingdom and Spain. The combined companies will employ 100,000, company officials have said.

Bank of America officials have not set a timetable for making the job cuts.

With the purchase of MBNA, Bank of America gains MBNA's affinity marketing approach, in which MBNA gives organizations such as professional associations, universities, clubs and professional sports teams a portion of the revenues from a credit card if the organization endorses the card to its members.

Much of MBNA's phenomenal growth over the 20-plus years since it was formed is attributed to the affinity marketing method. The company averaged profit gains of 25 percent for much of the 1990s. Its earnings exceeded $1 billion in 1999 and topped $2 billion in 2003.

MBNA boasted lower-than average losses, in part because its customer base had a higher income and because the company stressed customer retention and assistance with those in debt trouble.

Bruce Hammonds, MBNA's chief executive officer, will become president of Bank of America Card Services and a member of Bank of America's Risk & Capital Committee. In addition, Frank Bramble Sr., former vice chairman of MBNA, will join Bank of America's board of directors at its regularly scheduled January meeting.

According to the statement, MBNA shareholders will receive 0.5009 of a share of Bank of America common stock and $4.125 in cash for each share of MBNA common stock that they held immediately before the merger. MBNA shareholders will receive cash instead of any fractional shares of Bank of America common stock that otherwise would be issued.

As a result of the merger, Bank of America expects to achieve overall expense efficiencies of $850 million after taxes, to be fully realized by the end of 2007, and anticipates a restructuring charge of $1.3 billion after taxes. Cost reductions are expected to come from a range of sources, including elimination of overlapping technology, vendor leverage, marketing expense and personnel reductions.

As part of the merger, Bank of America will increase its philanthropic giving. In 2005, Bank of America announced a $1.5 billion charitable giving goal over the next 10 years. With the addition of MBNA's foundation, the Bank of America Charitable Foundation expects to provide more than $200 million in charitable giving in 2006, making the combined organization one of the most generous in the country.

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Copyright (c) 2006, Bangor Daily News, Maine

Distributed by Knight Ridder/Tribune Business News.

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Source: Bangor Daily News (Bangor, Maine)

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