MBNA Corp.'s planned purchase of First Union Corp.'s credit card portfolio is expected to add to the company's profits quickly while helping it close in further on the U.S. market share leaders, Citigroup Inc. and Bank One Corp.
The card company announced Monday that it will acquire First Union's $5.6 billion of credit card loans, three million consumer accounts, and 300,000 commercial accounts. The deal would push MBNA's market share to 15.4% from 14%, vice chairman David Spartin said.
According to the Nilson Report, MBNA's MasterCard and Visa portfolio had $58.8 billion of receivables in the first quarter, trailing Citibank, with $73.3 billion, and Bank One's First USA unit, with $66.49 billion.
MBNA would service First Union's existing portfolio and, would also market personal, business, corporate, and purchasing cards to the bank's 16 million customers for the next seven years. The deal, which is expected to close in the third quarter, would mark First Union's exit from the credit card issuing business.
Financial terms were not disclosed, but First Union said it expects to book a $1 billion gain before taxes and expenses on the sale.
The deal would boost MBNA's market share in those states where First Union has a physical presence from 17% to 22%, Mr. Spartin said. The bank currently has 2,200 branches in 12 East Coast states and Washington, where over 90% of the customers whose accounts would be acquired by MBNA are located. "What remains are true, loyal First Union customers," he said.
Analysts say the card company's stock price, which has improved in the last year, facilitated the First Union deal. To finance the acquisition, MBNA announced it would raise $1.6 billion by selling 50 million shares to Goldman Sachs.
In response to the transactions, Deutsche Banc Alex. Brown raised its 2001 earnings estimate for MBNA five cents, to $1.90 per share. Analyst Mark Alpert said that for the deal to be accretive, the portfolio would have to earn about $95 million after taxes.
Fitch IBCA said it is maintaining its A-minus rating for MBNA's senior debt and BBB-plus rating for its subordinated debt and preferred stock.
Thomas J. Abruzzo, senior director of Fitch's financial institutions group in New York, said that the deal "makes a lot of sense."
The First Union accounts are consistent with the credit quality of MBNA's existing portfolio, he said. "MBNA historically maintains one of the best credit quality portfolios in the credit card universe, and the quality of this one is very much in line."
MBNA reported $76.3 billion of first-half managed loans. The card company's second-quarter loan-loss ratio was 3.95%. First Union's was slightly higher, at 4.4%, but Mr. Abruzzo said its "more seasoned" portfolio adds value to the acquisition.
