MBNA Ltd, a wholly owned subsidiary of Bank of America Corporation (BAC), sold a credit card portfolio worth $570 million (£363 million) to UK retail bank, Virgin Money PLC. The portfolio consisted of Virgin Money credit card assets, which MBNA has been marketing and distributing since 2002.
Virgin Money, which recently got listed on the London Stock Exchange, had previously acquired its credit card customer balances worth £1 billion from MBNA in Jan 2013. The latest additional purchase was made as the British bank has been working diligently to expand its own card business.
Under the MBNA and Virgin Money partnership, all sold credit cards were recorded on MBNA’s balance sheet. However, Virgin Money now looks forward to managing and distributing its card business on its own from 2015. Till then, MBNA will continue to provide its services.
Though MBNA will lose business from the credit card sale, this trade will fit into BofA’s strategy of exiting the entire international credit card business including portfolios in the UK and Ireland.
The credit card business constitutes a major source of revenue for BofA. However, the financial crisis of 2008 compelled the bank to shrink its card portfolios in order to tackle the losses arising from bad loans. The bank then decided to focus on its core business by divesting all international credit card units.
Over the last few years, BofA has sold its Canadian credit-card unit to Toronto-Dominion Bank (TD) and the consumer credit card operations in Ireland to Apollo Global Management LLC’s (APO) fund affiliate. Moreover, the bank divested its small business card loans to Barclays PLC (BCS).
The bank has also been retrenching employees, which has helped it in streamlining its operations and improving top-line growth. Moreover, the bank has shifted its attention to secured lending by selling credit cards to existing customers, thereby reducing the marketing costs as well.
Currently, BofA sports a Zacks Rank #3 (Hold).
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