Insurance mis-selling claims could hamper MBNA sell off

CONTENDERS to buy MBNA are attempting to mitigate the effects of likely costs relating to insurance mis-selling in advance of the 2019 deadline for compensation claims.

According to Sky News, Lloyds Banking Group and investment company Cerberus have been asked to submit revised offers for MBNA within the next two weeks amid strong competition to acquire the business, which has 1,500 staff based in Chester.

A number of the bidders are reported to have been seeking to negotiate an indemnity for future payment protection insurance (PPI) costs with Bank of America (BoA), MBNA’s owner.

BoA has rejected the move, partly because a 2019 deadline for mis-selling claims and an advertising blitz to consumers ahead of that cut-off point meant there was likely to be a further spike in costs arising from consumers’ efforts to seek redress, the sources added.

MBNA’s total PPI bill is small compared to the major high street banks, but it has had to set aside more than £500m for the scandal in the last two years alone.
BoA’s unwillingness to indemnify bidders against future PPI costs could concern financial regulators, according to insiders.

In addition to Lloyds and Cerberus, Santander UK has also tabled a bid for MBNA, while HSBC has also been circling.

The absence of a PPI indemnity is likely to affect the price that bidders are ultimately likely to pay for the credit card giant.

MBNA’s receivables portfolio is worth about £7bn, which means BoA would be the largest in the sector for years.

The company presented reduced profit forecasts to bidders in July, after an initial freeze in financing markets after June’s EU referendum led BoA to consider aborting the auction.

A subsequent revival in debt markets provided confidence to both MBNA’s owner and prospective bidders that they could finance a takeover.

MBNA’s loan book is equivalent to roughly 11% of the UK credit card market.

The company has more than five million UK customers, and issues cards under the brands of dozens of partners such as Virgin Atlantic Airways and the Premier League football clubs Arsenal and Liverpool.

It has sought to raise its profile through sponsorships of the Thames Clippers and Chester races.

MBNA says the company made a profit of £166m in 2015.

A previous sale process in 2012 attracted interest from Barclays, which owns Barclaycard, the UK’s biggest credit card provider, and Virgin Money.

No-one involved in the bidding, including MBNA, was available for comment.