The recent announced merger of Bank of America and MBNA will raise the U.S. market share of the top three general purpose credit card issuers from 49% to 58%. Due to BofA’s strong organic growth and barring any major Chase and Citi acquisitions, the combination of BofA and MBNA will produce the nation’s largest credit card issuer next year. At the end of the first quarter, BofA and MBNA had combined U.S. credit card outstandings of $134.8 billion. MBNA posted $76.9 billion in Q1 domestic outstandings and BofA reported $57.9 billion in 1Q/05 credit card managed receivables. MBNA also has $25.7 billion in Q1 loans to overseas clients as of March 31, 2005. At the end of the first quarter, according to CardData, Chase posted $133.4 billion in U.S. credit card outstandings and Citi reported $115.8 billion. However, the Citi figure includes cards outside the USA but within North America.
Bank of America, the second largest U.S. bank, has inked a deal to acquire MBNA for $35 billion, in a deal that creates the nation’s largest bank credit card issuer with nearly $135 billion in U.S. outstandings. The merger, expected to close in the fourth quarter, will further consolidate the market power of the top ten issuers producing a market share of about 87%. About 6,000 jobs will be cut as a result of the combination producing an estimated $850 million in cost reductions. Bruce Hammonds, CEO and president of MBNA, will become CEO and president of BofA Card Services and report to Liam McGee, president, BofA’s Global Consumer and Small Business Banking unit. Hammonds will also be part of BofA’s Risk & Capital Committee. Frank Bramble, vice chairman of MBNA, will be appointed to the BofA Board of Directors. MBNA posted net income of $514.1 million in 1Q/05, excluding charges for staff reductions, facilities closings, and contract terminations. The issuer has been struggling with declining credit card balances and a weak diversification effort in the USA.
Bank of America’s CEO indicated it may consider more credit card acquisitions and possibly an acquisition of an entire company. However, Kenneth Lewis said the Company has no desire to enter the subprime credit card arena. When pressed about a possible acquisition of MBNA, Lewis refused to confirm or deny an interest in the Company. BofA, the second largest U.S. bank, is the fourth largest bank credit card issuer. Bank of America’s credit card loans grew 7.8% in the first quarter ending with $57.9 billion. The issuer opened 1.3 million new credit card accounts during the quarter as pre-tax card income hit $750 million. (CF Library 4/18/05)
Bank of America has signed a definitive agreement to buy approximately 9% of the stock of China Construction Bank for $3 billion,
with the option of increasing its stake in future years. CCB, the second largest commercial bank in China, has $472 billion in assets and $422 billion in deposits. It has 136 million active retail deposit account relationships, a national network of 14,500 branches concentrated in the more economically developed areas and a relationship with 92 of the top 100 enterprises in China. It is China’s second largest mortgage lender and has leading positions in credit cards and infrastructure loans. The bank is currently majority owned by China SAFE Investments Limited, an entity of the government of China. Bank of America currently operates a bank in Hong Kong with 16 offices offering an array of consumer banking products. It also has corporate banking offices in Beijing, Shanghai and Guangzhou.
Bank of America announced a definitive agreement to buy approximately 9% of the stock of China Construction Bank for $3 billion, with the option of increasing its stake in future years. CCB, the second largest commercial bank in China, has RMB 3,910 billion ($472 billion) in assets and RMB 3,491 billion ($422 billion) in deposits and 136 million active retail deposit account relationships. The bank is currently majority owned by China SAFE Investments Limited, an entity of the government of China. Bank of America is one of the world’s largest financial institutions, serving 33 million consumer relationships.
Monolines, which dominated organic growth in the U.S. payment card industry for a decade, continued to fall from grace during the first quarter. Bank of America has emerged as the new growth engine followed by Chase, displacing long-term leaders MBNA and Capital One. During the first quarter, Bank of America posted a 7.8% year-over-year increase in outstandings, compared to a 9.8% decline in MBNA outstandings. Chase, the largest U.S. issuer, posted a solid 6.5% in credit card outstandings during the first quarter, compared to Capital One’s weak 2.9% gain. As a group, the top five U.S. issuers reported $429.6 billion in first quarter credit card managed outstandings, a 2% gain over 1Q/04. For complete details on first quarter performance by U.S. issuers, visit CardData ([www.carddata.com]).
Top 5 U.S. Issuers’ Outstandings
ISSUER 1Q/05 1Q/04 CHNG
Chase $133.4b $125.2b +6.5%
Citi $115.8b $112.1b +3.3%
MBNA $ 74.8b $ 82.9b -9.8%
BofA $ 57.9b $ 53.7b +7.8%
Disc $ 47.7b $ 47.3b +0.2%
TOTAL $429.5b $421.1b +2.0%
Source: CardData (www.carddata.com)
Mercedes-Benz Credit has partnered with Bank of America to introduce two new credit cards for Mercedes-Benz drivers. The “Mercedes-Benz VISA Signature” card offers a rewards program that allows cardholders to earn 1.5 reward points for every dollar spent on net monthly purchases, with up to 10 reward points on Mercedes-Benz dealership transactions. Cardholders can redeem their points for airline travel, vacation packages, merchandise, gift certificates, Mercedes-Benz Credit monthly payments, Mercedes-Benz parts and service or charitable donations. Cardholders can also create their own rewards including hosting a wine tasting or taking the family on a custom-designed vacation. The partnership between Mercedes-Benz Credit and Bank of America also enhanced the existing “Mercedes-Benz VISA Platinum” card. Cardholders can earn reward points on purchases without an annual fee. The reward component allows cardholders to use their points toward their choice of Mercedes-Benz Parts and Service at authorized dealerships, Mercedes-Benz Credit monthly payments and Mercedes-Benz Collection and Mercedes-Benz Classic merchandise.
Bank of America’s credit card loans grew 7.8% in the first quarter ending with $57.9 billion. The issuer opened 1.3 million new credit card accounts during the quarter as pre-tax card income hit $750 million. First quarter charge-offs were 6.17%, compared to 5.90% in the prior quarter, and 5.05% one year ago. BofA says that card charge-offs grew as a result of the Fleet acquisition, card portfolio growth and seasoning and increases in minimum payment requirements as compared to the first quarter of 2004. The managed 30+ day delinquency was 4.20%, compared to 4.37% in the fourth quarter and 3.75% for 1Q/04. Managed 90+ day delinquency was 2.10%, compared to 2.13% in the fourth quarter, and 1.81% for 1Q/04. BofA also reported that its merchant acquiring business handled $75.8 billion in processing volume during the first quarter on total transactions of 1.6 billion. The issuer also noted that active online banking users increased to 13.1 million, while online bill payers reached 6.3 million in the first quarter of 2005. For complete details on Bank of America’s 1Q/05 performance, visit CardData ([www.carddata.com]).
BOFA CARD LOAN HISTORICAL
1Q/03 $29.1 billion
2Q/03: $30.8 billion
3Q/03: $33.6 billion
4Q/03: $36.6 billion
1Q/04: $37.3 billion
2Q/04: $52.0 billion
3Q/04: $55.4 billion
4Q/04: $58.6 billion
1Q/05: $57.9 billion
Source: CardData (www.carddata.com)
The average balance per active account among the top 10 issuers increased 3.3% last year to $2,356. Compared to five years ago, average balances are up about 4%, indicating that consumers are spreading their balances over multiple accounts. The nation’s top issuer, Chase, had a 1.3% decline in average balances last year. MBNA’s average balance also fell by nearly 3%, according to CardData ([www.carddata.com]). Citi, the nation’s #2 issuer, experienced a 6.7% increase in average balances during 2004. Other top gainers are HSBC +18%, Wells Fargo +12% and Providian +7%.
AVERAGE BALANCES AMONG TOP 10 ISSUERS
(per active account)
ISSUER 2004 2003 CHNG
1. Chase $3411 $3457 – 1.3%
2. Citi $1690 $1584 + 6.7%
3. MBNA $2475 $2548 – 2.9%
4. BofA $3118 $3057 + 2.0%
5. Cap One $1854 $1801 + 2.9%
6. Disc $2452 $2325 + 5.5%
7. AmEx $2240 $2362 – 5.2%
8. HSBC $1734 $1469 +18.0%
9. Prov $2439 $2288 + 6.6%
10. Wells $2146 $1923 +11.6%
AVG $2356 $2281 + 3.3%
SOURCE: CardData (www.carddata.com)
Bank of America has launched a new rewards card targeted at the Hispanic community which collectively holds about $630 billion in buying power. The new “Efectiva VISA Platinum,” offers 1% cash-back, credit building features and a full range of bilingual services. The card carries no annual fee and caps reward points at 600 per year. Bilingual services include welcome kits, a reward redemption site, program materials, communications, check offers and monthly statements. According to a 2004 study by Simmons, only 41.2% of Hispanics currently have and use credit cards, while 74% of non-Hispanics own and use credit cards.
Bank of America has announced cardholder changes that go into effect with the billing cycle that ends in April, according to CardWatch (www.cardwatch.com). The BofA variable rate will now be based on the prime rate on the last day of the month or the highest prime rate published by the WSJ within the immediately preceding three months. The issuer also adjusted its penalty interest rate to prime +23.99% from prime +21.99% with a 25.99% minimum. The rate is triggered if there are two late payments or two over-limits in a twelve month period. The cash advance APR is increasing to prime +15.99% instead of a variable rate with a 19.99% minimum. Additionally, BofA is raising its foreign currency adjustment fee from 2% to 3%, as VISA and MasterCard drop their 1% conversion fee.
Advanta is receiving $64 million from Bank of America after the IRS approved the settlement in regard to Advanta’s card portfolio sale to FleetBoston. Consistent with the terms of the settlement, all outstanding litigation between the two companies is being dismissed. The settlement results in a net after-tax gain of approximately $61 million and an increase in book value of approximately $2.45 per share, as previously outlined. Advanta focuses on the small business market and related community, providing funding and support to the nation’s small businesses through innovative products and services.