Santander UK Eyes Swoop On MBNA To Boost Ring-Fencing Plans

Santander UK is weighing a takeover bid for one of the UK’s biggest credit card groups in a move that could cast doubt on its interest in buying a separate set of assets from the state-backed Royal Bank of Scotland (RBS).

Sky News has learnt that Santander UK is actively considering making an offer for MBNA, which has been put up for sale by its American owner, in an attempt to strengthen its plans to deal with far-reaching industry reforms due to be implemented in 2019.

MBNA has already attracted interest from Lloyds Banking Group, Britain's biggest high street lender, as well as a string of private equity firms.

Sources said that Santander UK had not yet made a formal bid for MBNA but was looking at doing so next week, when a deadline for offers has been set by advisers to Bank of America, the credit card company's owner.

Santander UK is said to be looking at MBNA as a takeover target with a view to strengthening the balance sheet of what will become its non-ring-fenced bank under Government reforms designed to protect taxpayers and savers against a future financial crisis.

MBNA's £7bn credit card book would sit within the non-ring-fenced bank, potentially making it easier for it to attract an investment grade credit rating, according to insiders.

Santander UK's interest in a deal could spark anxiety at RBS, which has been negotiating with the Spanish-owned lender over the sale of hundreds of branches and a significant slice of the personal current account and small business banking market.

It remains conceivable that Santander UK could seek to acquire both the RBS division and MBNA, although its appetite for pursuing both transactions simultaneously was unclear on Monday.

A Santander UK spokeswoman said it did not comment on rumour and speculation.

The issue is particularly sensitive for RBS because it recently abandoned efforts to spin off its assets - which it is required by Brussels to sell by the end of next year - as a standalone business under the Williams & Glyn name, in favour of a sale to a trade buyer.

A bid from Santander UK for MBNA would strengthen competition in the auction of the credit card issuer, potentially driving up its price tag, which had looked weaker in the wake of the UK's vote to leave the European Union (EU).

MBNA has a receivables portfolio worth about £7bn, and BoA is said to be keen to agree a deal before the end of the year.

Lloyds, which has declared its intention to grow its credit card business, is seen as the likeliest buyer, although some banking analysts have warned that such a substantial acquisition could undermine its intention to pay a special dividend at the end of the year.

Sources said that MBNA had presented reduced profit forecasts in July, after an initial freeze in financing markets after June's EU referendum had led BoA to consider aborting the auction.

A revival in debt markets has, though, provided confidence to both MBNA's owner and prospective bidders that they can fund a takeover.

MBNA's loan book is equivalent to roughly 11% of the UK credit card market, and it employs well over 1,500 staff at its base in Chester.

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

A successful exit for BoA would underline the ongoing efforts of global banks to dispose of non-core operations amid regulatory reforms introduced since the financial crisis of 2008.

MBNA says the company, which also issues cards branded with charities such as the British Heart Foundation, made a profit of £166m in 2015.

Its parent's plan to sell the business comes as demand for contactless payment products soars, with card-issuers scrambling to develop sophisticated mobile wallet services.

MBNA announced in March that it would begin offering Google's Android Pay service to consumers when it launches later this year.

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

In 2013, Virgin Money acquired a £1bn portfolio of credit card assets operated under its own brand from MBNA, two years after it also bought Northern Rock's "good bank" from the Government.

MBNA declined to comment.