British banking group Lloyds has announced it’s intention to purchase credit card company MBNA. The deal which is expected to be completed in the first half of 2017 will see the UK banking group pay £1.9BN to MBMA’s current owners Bank of America.
This deal is seen as a good fit which should complement Lloyds existing credit card services. It will increase Lloyds market share of the UK credit card market from 15% to 26%.
Significant cost synergies are seen as being behind the deal. Initial estimates expect savings of over £100 million per year from the deal.
Lloyds chief executive Antonio Horta-Osorio commented on the deal “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.”
Following the takeover MBNA will retain it’s own card branding and rates.
The deal is the first by Lloyds since the 2008 financial crisis. It is expected that the proposed acquisition will increase group revenues by around £650m per year.
The deal assumes £240m to cover claims against MBNA for PPI mis-selling claims. It is thought that the deadline set on claims by the FCA helped to underpin this latest deal. As recently as October Lloyds itself set aside a further £1BN to cover remaining PPI payments.
Lloyds has continued with an ongoing restructuring plan, revealing plans to shed a further 1,200 jobs in October. It’s most recent report showed that pre-tax profits had fallen 15% over the third quarter to £811m.
The latest deal is expected to boost revenues by £650m a year. It predicts an increase in earnings per share of 3% and 5% once the deal is completed.
Lloyds which remains part owned by the UK government is expected to become fully privatized in 2017. The sale of the remaining 7% government stake is expected to be completed early in the New Year. Proceeds from the sale will be returned to the treasury.
Shares in Lloyds Banking Group closed the day at 64.13 pence, up 1.58p on the day (2.52%)
Outlook
The shares have had a good run in recent months and the latest deal look set to add to the bottom line.
With the final sale of the remaining government holding scheduled for early next year, there is the potential for further deals.
Binary options traders who backed the latest news today would have profited from a Call position with their broker. With seasonal markets in play, further long trades could profit if the current momentum continues.