Bank of America Corp. plans to expand the affinity platform obtained through January's acquisition of MBNA Corp. beyond credit cards to several other consumer products it offers, perhaps as early as next year.
Liam McGee, B of A's president of global consumer and small-business banking, said it is negotiating with its affinity partners to endorse services including debit cards, mortgages and home equity loans, automobile loans, and insurance.
Doing so, he said Tuesday at a conference in New York hosted by UBS AG, "will create a powerful engine for future growth."
B of A spokesman Joe Miller said Wednesday that the $1.4 trillion-asset company will first offer affinity debit cards, possibly starting in December. Other products would be issued over the course of 2007 and 2008.
Sanjay Sakhrani, an analyst at Credit Agricole Group's Calyon Securities, said it makes sense for Bank of America to try "another kind of mousetrap" to retain and land clients. Other financial companies rely on some kind of affinity marketing, but B of A may be among the first to market such a range of products, Mr. Sakhrani said.
Several mortgage companies and insurers offer programs linked to affinity groups, and many of them offer special promotions and rates. DeepGreen Financial of Cleveland offers home equity loans through affinity partners, and JPMorgan Chase & Co. is still considering a mortgage rewards program, which it first discussed last summer, that would be linked to certain retailers.
The move by Bank of America would further capitalize on its $34 billion acquisition of MBNA, which brought it affinity relationships with more than 5,000 organizations. The Wilmington, Del., card issuer had started to move toward wider affinity relationships for products like mortgages.
B of A introduced more than 300 affinity cards online in the first quarter and is marketing them in about 700 branches. It plans to offer affinity cards in all its branches by midyear.
The affinity initiative would complement efforts by Bank of America to improve its loan-to-deposit ratio. In addition to acquiring MBNA, the Charlotte company agreed last year to buy up to $55 billion of auto loans over a five-year period from General Motors Corp.
At the end of the first quarter B of A had deposits of $682 billion, 10% more than the $620 billion of loans on its books. The ratio is more out of balance within consumer and small-business banking, which was the largest bottom-line contributor at B of A in the first quarter, accounting for 54% of earnings, at $2.7 billion. The division's $340 billion of deposits at the end of the three months were nearly double its $184 billion of loans.
Last June, when B of A's overall deposits exceeded loans by 20%, Kenneth D. Lewis, its chairman, president, and CEO, told American Banker, "We can get a better balance" across the company. "Over time, our securities portfolio will not have to be as large to manage interest rates, and therefore the balance sheet over time will look customer-driven," Mr. Lewis said. "We need more consumer assets to balance that."
Mr. Miller said B of A is developing concepts to offer consumer products to affinity groups. He said one idea would be to offer price breaks on mortgages based on how frequently a customer uses an affinity-branded debit card or check. He said the company could also offer reduced rates on items such as insurance premiums.
John A. Pandtle, an analyst at Raymond James & Associates, said the strategy is sound if it can be deployed cost-effectively. B of A has "certainly spent a great deal of time and money building an enviable franchise," he said. "It will come down to cross-selling products."
Steven Kropper, a consultant at Equinox Corp., a mortgage acquisition and retention firm in Lexington, Mass., said: "The question is, Can they cross-sell the products? It's going to be hard, but if Bank of America can get a couple of basis points of market share, then it's worth the effort."
Mr. McGee said at the conference that Bank of America also wants to give more customers access to certain affinity products. For instance, in its branches it plans to offer university-branded cards to customers who may not be members of an alumni association.
Frank Barkocy, the director of research at Keefe Managers Inc., a fund manager that focuses on the financial services industry, said that broadening affinity memberships might be detrimental. "Opening up the membership might dilute some of the attraction of the affinity product," he said.
