MBNA pays £225m for Alliance & Leicester credit cards

Alliance & Leicester has sold its credit card business to card issuer MBNA for £225m as part of its plans to cut costs and reduce exposure to bad debt.

MBNA, the world's second-largest credit card issuer, will be gaining account balances of about £800m and 1.34 million customers. A&L is being paid £225m over the outstand- ing balances.

The deal means 350 jobs at A&L's credit card business are threatened, but efforts are being made to redeploy staff and avoid compulsory redundancies.

MBNA will sell new Alliance & Leicester credit cards through the bank's 310 branches, which will still carry the A&L brand. The deal gives MBNA a market share of about 14 per cent in the UK.

A&L had been reviewing its credit card business for some time and decided it did not have the scale to compete in the expanding market that is being increasingly dominated by worldwide players.

It said the investment required to sustain the business and the risks in trying to build market share were too high to justify to shareholders. In 2001, the credit card business cost A&L £44m, £19m of which was a bad debt charge.

A&L said selling the credit card operations will allow it to lower bad debt charges and help release capital tied up in the business. Disposing of the business will decrease costs by £20m and boost surplus capital by about £60m.

The move comes a week after A&L reported a 12 per cent jump in profits for the first six months of the year.

The chief executive, Richard Pym, announced then it was in talks with a third party to take over running the credit card business as part of its strategy to streamline the group.

Mr Pym said yesterday: "We are committed to providing our customers with a full range of personal banking products – including an attractive choice of credit cards. After a full review we have concluded the best way to achieve this for our customers is through this arrangement with MBNA."

A&L is now concentrating on four main areas – mortgages, current accounts, savings and unsecured personal loans.

It has also now disposed of its life insurance business to Legal & General, releasing £34m of capital, which will be used in the forthcoming share buyback issue.