New York – Bank of America Corp., still digesting its $48 billion acquisition of FleetBoston Financial Corp., sent a clear signal Thursday that it intends to keep growing, as it struck a $35 billion deal with MBNA that will make it the nation’s largest credit-card issuer.
The whirlwind deal – which took just a week to negotiate from start to finish – gives Bank of America a 20 percent market share in U.S. credit cards.
It marks the second big deal for Bank of America in two weeks, coming on the heels of the bank’s decision to take a 9 percent stake in China Construction Bank, one of China’s biggest lenders.
“With the customer base and distribution of Bank of America and the marketing savvy and product innovation of MBNA, we intend to build a best-in- class credit-card operation,” said Bank of America’s chief executive, Kenneth Lewis.
After the deal is closed, probbably by year’s end, Bank of America will have 40 million active credit-card accounts, making it one of the top credit- card issuers in the nation. And in buying MBNA, Bank of America also is taking over a firm that issues credit cards for many of its rivals, including fellow Charlotte, N.C.-based bank Wachovia Corp.
“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 Punk Ziegel & Co. in St. Petersburg, Fla.
Executives said they plan to cut about 6,000 jobs, mostly headquarters staff such as lawyers, finance professionals and human resources.
Analysts said the companies also could trim some of their operations. Bank of America’s main credit-card operations are in Phoenix and North Carolina, while MBNA’s main operations are in Maine, Delaware, Ohio and Texas.
The deal is likely to have far- reaching implications for the credit-card industry and could lead to other mergers of “monoline” credit-card companies, which derive most of their revenue from card sales.
Other possible takeover targets could include Capital One and American Express.
MBNA is known primarily for its affinity cards – relationships formed with professional organizations, alumni groups and sports leagues. Customers, who want to support those groups, tend to be more loyal, use their cards more and carry higher balances.
Despite this advantage, running a successful credit-card company has become tougher: After years of double-digit increases in cards, MBNA’s growth has slowed to 2 to 3 percent a year. The rising popularity of home-equity loans has cut into credit cards. Direct mail, a staple of the card industry, has become less effective. Consumers also are choosing to block telephone solicitations.
“The days of AmEx and Capital One are basically numbered since their product capabilities are more valuable to a financial banking conglomerate,” David Hendler, an analyst at the research firm CreditSights Inc., wrote Thursday.
The merger also will bring visible changes for customers of both companies: Bank of America plans to put its name on MBNA’s credit cards, and it has ambitious plans to persuade MBNA’s customers to open checking accounts, savings accounts, and invest in other Bank of America products.
The Associated Press contributed to this report.
