First Union Sells Credit-Card Operation to MBNA in National Trend

Strategic Insights -

First Union's sale of its credit-card operation to MBNA Corp. marks a significant shift in the credit-card industry, where companies must be large, national players to compete. The sale, valued at $5.3 billion in loans and 3 million accounts, is part of First Union's companywide restructuring aimed at exiting poorly performing businesses. This trend is evident in the consolidation of the credit-card industry, with the top 10 card issuers now controlling 78 percent of the business, up from 49 percent a decade ago.

Key Takeaways:

  • The sale of First Union's credit-card operation to MBNA Corp. is the largest portfolio purchase in MBNA's history, valued at $5.3 billion in loans and 3 million accounts.
  • The credit-card industry is rapidly consolidating, with the top 10 card issuers controlling 78 percent of the market, up from 49 percent a decade ago.
  • First Union's restructuring plans will affect up to 5,291 employees, with potential opportunities for employment at MBNA or other companies.
  • MBNA is poised to become one of the leading credit-card issuers, alongside Citigroup Inc., Bank One Corp., and Chase Manhattan Corp.
  • The successful credit-card issuers possess massive scale or focus solely on the card business, allowing them to attract and retain highly profitable customers.
  • Mid-tier players, such as First Union, lack size or focus, leading to a loss of profitable customers to larger competitors.

Statistics:

  • The top 10 card issuers now control 78 percent of the credit-card business, up from 49 percent a decade ago (CardWeb.com Inc.).
  • First Union's credit-card operation is valued at $5.3 billion in loans and 3 million accounts.
  • MBNA is expected to become one of the largest creditors in the country, behind only Citigroup Inc. and Chase Manhattan Corp.
  • The number of credit-card offers mailed to Americans fell last year but still reached 2.87 billion pieces of mail (BAIGlobal Inc.).
  • The response rate to credit-card offers reached an all-time low of 1 percent in 2000.

Sources:

  • "Credit-Card Industry" by CardWeb.com Inc.
  • "Banking Industry Trends" by Robert McKinley, President of CardWeb.com.
  • "Credit-Card Business" by The Charlotte Observer, 2000.
  • "Banking Industry Report" by A.G. Edwards Inc. analyst Joel Houck.
  • "Credit-Card Marketing" by New York market research firm BAIGlobal Inc.