MBNA CREDIT CARD

MBNA Corporation was a bank holding company and parent company of wholly owned subsidiary MBNA America Bank, N.A., headquartered in Wilmington, Delaware, prior to being acquired by Bank of America in 2005. It was the world's largest independent credit card issuer, specializing in affinity cards

MBNA was founded in 1982 as Maryland Bank, N.A., a subsidiary of Maryland National Bank. The name MBNA is an initialism that was derived as an abbreviation or acronym of Maryland Bank, National Association. In 1989, Maryland Bank was renamed MBNA America Bank. MBNA Corp. spun off from Maryland National and became an independent company in 1991.

Mergers and acquisitions

On June 30, 2005 MBNA announced that it was being acquired by Bank of America for stock and cash totalling more than $35 billion. The deal was closed on January 1, 2006. The acquisition resulted in MBNA being re-named to Bank of America Card Services while still based in Delaware. For the first part of 2006, MBNA still issued credit cards under its own name associated with Mastercard, VISA, and American Express, but by the second half of 2006, all card products were re-branded as Bank of America.

At the same time in June 2005, MBNA bought Loans.co.uk (LCUK), then the UK's leading finance broker. Although figures were never released, various media outlets including newspapers in Watford, Hertfordshire where Loans.co.uk head office is based (they have a call centre in Preston, Lancashire), reported the deal to founders David Cowham and Steve Hayes being worth £100m. MBNA/Bank of America have since decided to close Loans.co.uk due to the current market.

On January 1, 2006, MBNA merged with and into Bank of America. MBNA America Bank, National Association, (MBNA) then became a wholly-owned subsidiary of Bank of America. On June 10, 2006, MBNA changed its name to FIA Card Services, National Association (FIA). On October 20, 2006, Bank of America, National Association (USA), a subsidiary of Bank of America Corporation, merged with and into FIA.

It should be noted that in Canada and Europe the MBNA name is retained. MBNA Europe headquarters is in Chester, England. MBNA Canada's headquarters are located in Ottawa, Ontario. In 2007, the Canadian division was named one of Canada's Top 100 Employers

This purchase was a reunion of sorts. In 1993, NationsBank bought MNC Financial (whose credit card division was spun off years earlier to become MBNA). Five years later, the Bank of America that exists today was the result of the merger between the San Francisco-based Bank of America and the Charlotte-based NationsBank. In 2005, with Bank of America buying MBNA, it is in effect reuniting MNC Financial's credit card portfolio to its original banking assets and combining the Bank of America credit card portfolio with MBNA's.

MBNA was founded in 1982 by a group of MNC Financial executives headed by Charles Cawley. Its first office was housed in a converted A&P supermarket in Ogletown, Delaware.^[6] Until his recent death, Cleveland Browns owner Al Lerner served as Chairman of the Board.

The company, which has operations throughout the United States, Canada, Ireland, Spain, and the United Kingdom, also provided retail deposit accounts, consumer loans, and insurance products.

Employing more than 25,800 people around the world at the time of the merger with Bank of America, MBNA owned or managed more than $122.5 billion in outstanding consumer credit loans. Most of this loan debt was held in securitized portfolios that had been sold to other entities such as insurance companies and pension funds. MBNA virtually invented the process for securitizing credit card debt and this process contributed significantly to the fast growth of the company. It allowed for increasing the amount loaned without having to acquire matching assets to offset the loans.

MBNA History

Charles Cawley founded MBNA in 1982. The small bank, based in a Newark, Delaware supermarket, was formed as the credit card subsidiary of MNC Financial, a regional bank holding company headquartered in Baltimore, Maryland. The credit card industry was growing rapidly at the time, and Cawley was eager to expand the enterprise. Rather than pursuing the same strategies as his competitors, though, Cawley was looking for a marketing strategy that would separate his product from the homogenous horde of credit card lenders that competed mostly on price.

In 1983 Cawley approached his alma mater, Georgetown University in Washington, D.C., about partnering with him. His idea was to get the Georgetown University Alumni Association to endorse a credit card that would be offered exclusively to its members and generate a royalty or percentage of all revenues derived from the cards. The enticement for cardholders was that their use of the card benefited the alma mater, and that the card displayed their affiliation with Georgetown. The alumni association agreed to the project, and Cawley's first direct mailing effort was a hit. In addition to signing up an unusually large percentage of its prospects, MBNA benefited from the overall credit quality of its new customers, who were categorized generally as having relatively high income and education levels, thereby resulting in lower delinquency in charge-off levels.

As a result of his success with Georgetown, Cawley was convinced that he was on to something. By issuing 'affinity' cards and focusing on customer service, MBNA added value to an otherwise commodity-like service. He realized that if he could duplicate the results working with other groups, he could substantially increase MBNA's profit margins by capturing a more upscale and, therefore, less risky and higher spending segment of the market. Significantly, marketing costs per account could be greatly reduced because the response rate of direct sales efforts would be much higher than the industry average. Indeed, other credit card companies at the time often resorted to mass mailings targeted to broad groups identified by zip code or income level. In contrast, MBNA's prospects were motivated to review the credit card offer simply because of their affiliation with the group sponsoring the card.

Cawley next succeeded in getting the American Dental Association to sponsor an affinity card, and he followed that program with an affinity card for the Aircraft Owners and Pilots Association. Both efforts were successful. Throughout the mid-1980s Cawley aggressively approached new partners, focusing on various clubs and associations with an upscale membership. By 1985, in fact, MBNA was managing more than $1 billion in outstanding loans, compared with just $250 million going into 1983. MBNA's net income surged to $67 million in 1986 as outstanding credit vaulted to the $2 billion mark. Revenues and profits continued to surge as MBNA added affinity cards for major groups like the Sierra Club, Association of Trial Lawyers of America, the University of Texas, and National Education Association.

MBNA sustained its swift growth rate during the middle and late 1980s by scouting out upscale groups like college alumni associations and professional societies. After it selected an organization, it would offer future royalties in exchange for the group's membership list and permission to use its name and letterhead in direct-advertising efforts. By the early 1990s some groups were generating hundreds of thousands of dollars annually as a result of credit purchases under such agreements. For example, the Sierra Club arranged to receive one half of one percent of every charge made by its group members. MBNA had succeeded in signing up 45,000 of the environmental group's members by 1994, bringing more than $400,000 to the Club's coffers annually.

Although Cawley's strategy was unique for the early 1980s, by the mid-1980s other credit card companies were employing similar tactics. Nevertheless, MBNA continued to boost market share. Steady gains were in large part the result of fruitful marketing programs. MBNA marketers regularly solicited prospective groups with phone calls and by attending trade shows. Once they had the accounts, they utilized aggressive telemarketing and direct mail techniques to constantly boost the sizes of the accounts. For example, the Penn State Alumni Association entered into an affinity card agreement during the mid-1980s with a local bank, which succeeded in signing 15,000 members to the card. MBNA took the account over in 1989 and proceeded to boost membership to more than 120,000 within four years.

MBNA maintained its high-quality customer base by relying on credit reports to identify the most affluent and responsible customers. The strength of its credit base was reflected in its extremely low percentage of uncollectible loans, which was well below the industry average. Once it got the customers, it focused on keeping them with good service. For example, MBNA was the first credit card issuer to offer 24-hour-a-day service to all of its customers, and its phones were answered by people rather than by machines. In addition, people, rather than computer software, also reviewed individual account applications.

As MBNA's accounts swelled, so did its profits. By 1987 MBNA was managing more than $3 billion in credit card loans and netting a healthy $75 million annually in income. Managed loans surpassed $4 billion and then $5 billion in 1988 and 1989, as profits ballooned to more than $100 million annually. By 1990, MBNA was managing about $8 billion in credit card loans and pulling down nearly $130 million in profit. Those figures reflected an annual growth rate of more than 17 percent between 1987 and 1990. MBNA had become the largest single issuer of gold MasterCards and the fourth biggest provider of premium Visa cards. Its gold cards, in fact, made up about 42 percent of its accounts and were responsible for nearly 60 percent of MBNA's outstanding loan balances. Going into 1991, MBNA was marketing affinity cards for about 1,400 groups, including 223 medical and 70 attorney associations.

MBNA's rampant growth during the late 1980s mimicked the gains of its corporate parent, MNC. MNC invested heavily in real estate during the period and enjoyed solid profits. Unfortunately, the commercial real estate market collapsed before the end of the decade. By 1990, MNC, swimming in red ink, was desperate for cash. After losing more than $240 million during the first three quarters of 1990, MNC put its crown jewel, MBNA, on the auction block. Several credit card companies inquired, including Sears' Discover Card unit, but they balked at the $1.1 billion price and waited to see if the desperate MNC would go lower. Instead, MNC spun off MBNA in January 1991 in a public stock offering that raised about $955 million. The offering took place just two weeks before MNC's deadline to pay a $271 million debt.

Among the big winners of the MBNA spin-off was Alfred Lerner, a magnate with a personal worth estimated at $600 million at the time. Lerner was a major MNC stockholder. He had sold his bank, Equitable Bancorporation, to MNC in 1990 in exchange for MNC stock. Within weeks after the sale, however, MNC was drowning in real estate losses. Lerner was called in to run the bank, and he made the decision to sell MBNA. Shortly after the public stock offering, MBNA's stock price soared, and Lerner realized more than enough profit from his MBNA shares to offset his losses from his ownership in MNC. Lerner, who still owned about ten percent of MBNA in the early 1990s, became CEO of the newly formed MBNA Corporation. Still, Cawley, as president, continued to run the company.

By the early 1990s, MBNA's work force had grown to more than 5,000. To house its thriving operations, MBNA developed new facilities, including several important new regional marketing centers in Atlanta, Dallas, Cleveland, and Maine. From those facilities, several hundred representatives would conduct direct-marketing campaigns throughout their region and also provide service and information-processing functions.

The Northeast Regional Marketing Center in Camden, Maine, was representative of the marketing centers, and it also marked a tie to Cawley's past. Cawley's grandfather had once operated dress factories in Camden and adjacent Belfast, and Cawley was familiar with the area because he had summered nearby at his family's Lincolnville Beach estate. By the time the facility was completed in 1993, it was housing 250 people, and within two years MBNA had boosted that number to 600 and was planning further expansion in the area.

Despite the U.S. economic downturn of the late 1980s and early 1990s, MBNA continued to advance throughout the early 1990s. Managed loans nearly topped the $10 million mark in 1992 as MBNA's net income clambered to an impressive $170 million. By 1992, one-third of all U.S. doctors and about 20 percent of all attorneys were carrying MBNA credit cards, and their accounts were proving to be surprisingly profitable. Indeed, some analysts had questioned the wisdom of marketing credit cards to high-income individuals, few of whom would be expected to keep a running balance at high credit card interest rates. The average annual income of MBNA's cardholders in 1992 was an industry high of $54,000. However, MBNA's typical customer kept a running balance (at an average interest rate of 17.3 percent) of $2,200, about 35 percent higher than the industry average. By 1995, the customers' average annual income had risen to $59,000 and they were carrying an average balance of $2,886 (at an average interest rate of 16.4 percent).

Furthermore, MBNA charged its customers annual card fees of $20 to $40. Despite a flurry of new competition in the credit card industry, though, MBNA's affinity strategy allowed it to continue to successfully charge fees while many competitors dropped fees or slashed interest rate charges. MBNA also profited by selling much of its receivables forward at a fixed rate, a practice that essentially allowed the company to finance its portfolio at relatively low interest rates. Although that strategy left MBNA vulnerable to rising short-term interest rates, it paid off big during the early 1990s when rates were depressed.

MBNA's strategy was to sell to people with a common interest. In addition to the organizations and financial institutions that endorsed the company's products, MBNA began looking for 'created affinities.' For instance, it began offering cards displaying family coats-of-arms, as well as cards picturing regional landmarks to people proud of their home towns or states. By the mid-1990s, it was marketing to fans of nearly 200 different professional sports organizations, including National Football League teams, motor sports fans, and teams in every other major sport.

In 1995, MBNA moved its headquarters from a suburban location to Rodney Square in downtown Wilmington. This investment was credited with help to revive the downtown real estate market.