Home / World Business
Tue, Jan 03, 2006 - Page 12 News List

Bank of America claims top spot for credit cards

US MARKET With the purchase of MBNA, the firm passed American Express and JPMorgan Chase to become the US' No. 1 credit-card issuer

BLOOMBERG

Bank of America Corp became the No. 1 US credit-card issuer yesterday as it completed its US$34.2 billion acquisition of MBNA Corp.

The second-biggest US bank by assets, Bank of America completed the purchase after receiving approval from shareholders and regulators. The bank said in a statement that MBNA chief executive officer Bruce Hammonds will run Bank of America's card division from MBNA's former headquarters in Wilmington, Delaware.

The purchase vaults Charlotte, North Carolina-based Bank of America past American Express Co and JPMorgan Chase & Co with a combined US$140 billion in outstanding credit-card balances. Bank of America, also the top issuer of US debit cards, will try to sell its products to owners of MBNA accounts and use its affinity marketing programs to retain existing customers.

"The ability to utilize those marketing programs is going to be enormous for Bank of America," said Richard Bove, an analyst for Punk Ziegel & Co in Pinellas Park, Florida. "You'll see a significant increase in the bank's credit-card activity now that they have MBNA."

The US credit-card industry is now the realm of five top companies: Bank of America, American Express, JPMorgan and Citigroup Inc, all based in New York, and McLean, Virginia-based Capital One Financial Corp. Collectively, they control about three-quarters of the US$700 billion in outstanding balances on general-purpose credit cards, based on 2004 figures compiled by the Nilson Report, an industry newsletter.

MBNA holders will receive 0.5009 Bank of America shares plus US$4.125 in cash per share, or US$27.24 based on Dec. 30's US$46.15 closing price for Bank of America stock. MBNA shares closed at US$27.15.

"You have to have scale in this business," Bove said. "By doubling the size of their credit-card business, Bank of America will lower their cost of handling each individual account."

Bank of America said yesterday that it expects to record US$1.3 billion in "restructuring" costs. The bank said when the deal was announced June 30 it would cut US$850 million in annual combined costs by the end of next year, in part by slashing 6,000 jobs.

Bank of America chief executive officer Kenneth Lewis, 58, said last month at a New York conference hosted by Goldman Sachs Group Inc that the bank is "sticking to" its original forecasts for the merger.

The bank expects to lose about 7 percent of MBNA's revenue as rival banks that worked with the issuer take business elsewhere. Wachovia Corp, the No. 4 US bank, said on Nov. 3 that it was ending its joint-marketing agreement with MBNA and will start its own credit-card operation.

This story has been viewed 6185 times.
TOP top