Bank of America buys MBNA to become top credit-card company
In a surprise $24 billion deal, Bank of America, the #2 US banking company bought out MBNA, the leading non-bank credit card issuer in the US. The deal will make Bank of America the #1 credit card issuer in the world, and will also make it #2 in banking worldwide, second only to Citigroup.
The move doubles Bank of America's credit card business. The company will now have 20% of US market. It also gives Bank of America, which just recently acquired FleetBoston Financial in a $47 deal, yet another company to digest. BOA reportedly beat out North Carolina rival Wachovia to make the deal.
According to a Wall Street Journal article ("Bank of America Makes Deal For Credit-Card Issuer MBNA", 6/1/95), MBNA's acquisition is part of a trend in the glutted credit card industry:
For MBNA, the acquisition plan underscores the fading glory of stand-alone credit-card companies unaffiliated with banks. MBNA is one of a slew of such companies that took off in the 1980s when big banks were shedding card operations. But the stand-alones now are falling victim to slower growth and bitter competition.
Other related multibillion dollar moves this year have been the $6 billion acquisition of credit card issuer Providian Financial by savings bank Washington Mutual and the $5 billion purchase of a Louisiana bank (Hibernia) by credit card company Capital One. Credit card acquisitions motivated other recent big banking deals.
Plastic was a big attraction for J.P. Morgan Chase & Co. last year when it bought Bank One Corp., in a deal that made J.P. Morgan the nation's biggest issuer -- a position now expected to be taken by Bank of America. Last month, Citigroup agreed to acquire the credit-card businesses of Federated Department Stores Inc. and May Department Stores Co. for about $760 million, furthering its expansion into store-brand cards.
The credit card industry is currently in turmoil. Recent US bankruptcy legislation should make it easier for the companies to collect from defaulters (encouraging them to give away cards to people who are poor credit risks). The issuers, however, are being squeezed by higher fees from the two big credit card associations (Visa and MasterCard), the companies that build the network and deal with the merchandisers. Consumers are upset about usurious rates and a plethora of new fees.
And the glut is real. According to the WSJ article, "There are some 900 million credit and debit cards in circulation, and the average user has more than seven, according to industry estimates. So issuers want to own more of the cards in people's wallets."
As usual, overhead will be trimmed and many will lose their jobs. BOA hopes for synergy in offering banking services to MBNA customers and in using MBNA's marketing clout.
But mostly this is a story of simplifying the market so the few remaining players get more power over Visa and MasterCard and cut down on the number of competitors.
1:41:35 PM 
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