Lloyds share price: Lender may drop £7bn bid for MBNA

on Oct 24, 2016
Updated: Oct 21, 2019

A surprisingly large £4 billion charge for previous payment protection insurance (PPI) mis-selling by MBNA may lead Lloyds Banking Group (LON:LLOY) to drop its £7 billion bid for the credit card company, the Sunday Times has reported.

Lloyds’ share price has declined in London in today’s session, having lost 0.33 percent to 54.96, and slightly underperforming the blue-chip FTSE 100 index, which has slipped 0.25 percent to 7,003.18 points. The lender’s shares have lost nearly 25 percent of their value this year, and continue to trade well below the taxpayer’s break-even price of 73.6p.
Lloyds and investment firm Cerberus are among several banks interested in a bid for Bank of America’s (BoA) credit card business in the UK. Earlier this month, the companies had been asked to submit revised offers for MBNA in about a fortnight amid stiff competition to acquire the business. Reportedly, a number of the bidders had been seeking to negotiate an indemnity for PPI costs with BoA, but the MBNA owner had rejected those attempts.

In the bid battle between Lloyds and Cerberus, the FTSE 100 banking group was reported by the Sunday Times to be demanding that BoA picks up a sizeable portion of any mis-selling bill, while Cerberus is being less demanding. A rejection could prompt Lloyds drop its bid although MBNA fits with its search for acquisitions to accelerate its planned expansion in niche areas, such as unsecured consumer loans, car finance, leasing and fleet management.

Lloyds has the biggest PPI bill so far, having sold more such policies than any of its peers. The bank could reveal a further charge of as much as £1.5 billion when it kicks off the sector’s third quarter updates on Wednesday, according to Citi experts. UBS is anticipating a more modest PPI top-up of £800 million to cover claims up until the 2019 deadline, given that Lloyds already has £2 billion in unused provisions.
Results from Lloyds will also show a pension hit following the Brexit vote, as will many of its rivals as company schemes have been hammered by falling bond yields. Its figures come after Chancellor Philip Hammond ditched plans for a Lloyds share sale to the public earlier this month, instead planning to offload the government’s remaining 9.1 percent stake to institutional investors.
As of 15:46 BST, Monday, 24 October, Lloyds Banking Group share price is 59.42p.

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