14 | LMT BUSINESS JOURNAL
MONDAY, JULY 4 , 2005
MONDAY, JULY 4, 2005
LMT BUSINESS JOURNAL | 3
MARKET WATCH
Bank of America gets MBNA
BY SASHA TALCOTT
THE BOSTON GLOBE
Bank of America Corp., still digesting its $48 billion acquisition of FleetBoston Financial Corp., sent a clear signal Thursday that it intends to keep growing bigger, as it struck a $35 billion deal with MBNA that would make it the nation’s largest credit card issuer. The whirlwind deal - which took just a week to negotiate from start to finish - gives Bank of America 20 percent market share in US credit cards. It marks the second big deal for Bank of America in two weeks, coming on the heels of the bank’s decision to take a 9 percent stake in China Construction Bank, one of China’s biggest lenders. “With the customer base and distribution of Bank of America and the marketing savvy and product innovation of MBNA, we intend to build a best-in-class credit card operation,” said Bank of America’s chief executive, Kenneth D. Lewis.
card companies, which derive most of their revenue from card sales. Other possible takeover targets could include Capital One and American Express. MBNA is known primarily for its affinity cards - relationships that it has formed with professional organizations, alumni groups, and sports leagues. Customers, who want to support those groups, tend to be more loyal, use their cards more and carry higher balances.
Increased competition
Despite this advantage, running a successful credit card company has become tougher: After years of double-digit growth in cards, MBNA’s growth has slowed to 2 to 3 percent per year. The rising popularity of home-equity loans has cut into credit cards. Direct mail, a staple of the card industry, has become less effective. Consumers also chose to block telephone solicitations through the federal government’s Do Not Call list. “The days of AmEx and Capital One are basically numbered since their product capabilities are more valuable to a financial banking conglomerate,” David Hendler, an analyst at the research firm CreditSights Inc., wrote in a research report Thursday. The merger also will bring visible changes for customers of both companies: Bank of America plans to put its name on MBNA’s credit cards, and it has ambitious plans to persuade MBNA’s customers to open checking accounts, savings accounts, and invest in other Bank of America products. When Bank of America customers walk into branches, bankers will try to sell them MBNA credit cards. Lewis, Bank of America’s chief executive, had previously expressed a strong interest in growing the bank’s credit card business. He told investors at Prudential Securities in May that Bank of America viewed the credit card market as “saturated” and highly competitive, but it also thought it had an advantage through selling the cards through its own bank branches. Large financial services companies, such as Bank of America, like credit cards because they provide a
Local connecttion
Laredo has one Bank of America location and one is on its way. The Bank of America construction, next to the Red Lobster, is getting done sooner than expected, and Alex Lerma, BA banking center manager for the McPherson Road location, said the building should be completed by mid to late August. He said the new bank location, to be managed by Pedro Torres, is expected to keep busy. It should be similar in construction to the McPherson location, in the “Denovos” style, and the work is being done by Centex, builder of al the BA locations in Texas. There could be minor changes is the decorations in the new location Executives said they plan to cut about 6,000 jobs, mostly headquarters staff such as lawyers, finance professionals, and human resources. Analysts said the companies could also trim some of their card-processing operations. Bank of America’s main credit card operations are in Phoenix and North Carolina, while MBNA’s main operations are in Maine, Delaware, Ohio, and Texas.
steady source of earnings. Bank earnings can swing with interest rates, but adding a credit card business along with other businesses, such as mutual funds, can have a smoothing effect. To sustain its growth, MBNA embarked on a multiyear plan to branch out into other financial products, said Bruce L. Hammond, MBNA’s chief executive, who is slated to stay on at Bank of America. He said MBNA later concluded it could expand into other areas much faster if it merged with Bank of America, which it contacted last Wednesday about a deal. Thursday’s deal may also indicate an increasing resolve on the part of Bank of America to expand internationally. After the deal with China Construction Bank closes, executives said Thursday they want to offer MBNA cards in China. MBNA also has grabbed market share in England, Ireland and Canada, which may aid Bank of America. Lewis also talked Thursday of expanding credit cards in Mexico and Brazil.
MARKET BRIEFS
Crude oil rises to record high on supply concerns
ASSOCIATED PRESS
Nymex crude had briefly touched the $60 mark on several occasions last week before Friday’s settlement price, the highest since futures began trading on the exchange in 1983.
VIENNA, Austria — Oil prices vaulted over the $60 mark Monday to trade at record highs amid concerns that supplies would not meet demand, especially in the United States, the world’s largest energy consumer. Analysts said with $60 a barrel no longer a threshold — and amid continued concerns about refining capacities — prices appeared set to go even higher. After settling at $59.84 a barrel Friday, the front-month August contract for crude smashed through the psychologically important $60 barrier in heavy Asian and European trading on the New York Mercantile Exchange. By midmorning in New York, it was up 46 cents at $60.30. Other petroleum products followed crude’s rise. Despite a traditional seasonal lull, heating oil was 1.66 cent at $1.6670. Gasoline surged to $1.6640 a gallon, up 0.83 cent. On London’s International Petroleum Exchange, August Brent was up 40 cents at $58.76 a barrel.
Rio Vista Energy appoints new chief executive officer
BUSINESS WIRE
provide the requisite leadership for Rio Vista as it seeks to implement steps to improve cash flows. These steps may include reduction of operating costs, restructuring of certain obligations, and raising additional debt and/or equity capital. Under Handly’s leadership, Rio Vista is also actively pursuing discussions regarding a possible sale of all or a portion its LPG assets.
HOUSTON—June 28, 2005—Rio Vista Energy Partners L.P. (Nasdaq:RVEP), a supplier of LPG for distribution to Northeast Mexico, said Tuesday Charles C. Handly was appointed as president and chief executive officer of Rio Vista GP LLC the general partner of Rio Vista Energy Partners L.P. effective June 23, 2005. Handly replaces Richard Shore Jr. who resigned from all positions with the General Partner on June 22, 2005. Handly, has served as an executive officer of the General Partner since July 2003. Before joining Rio Vista and its affiliate, Penn Octane Corporation, Handly worked at Exxon Corporation (now Exxon Mobil Corporation) for 38 years. Based on his extensive experience, Handly is expected to
Consumer confidence rises to better-than-expected level in June
ASSOCIATED PRESS
NEW YORK — Consumers’ confidence in the economy gained momentum in June, rising to a higher-than-expected level for the second month in a row. The advance reported by The Conference Board put consumer confidence at a three-year high. The business research group said Tuesday its Consumer Confidence Index rose to 105.8 this month from a revised 103.1 in May, better than the 104.0 analysts expected. In May, the index shot up more than five points after dropping in April. June’s reading was the highest since June
2002, when the index stood at 106.3. “The improvement in consumer’s mood suggests that business activity and labor market activity will continue to pick up over the next several months,” said Lynn Franco, director of The Conference Board’s Consumer Research Center. “And, with consumers in better spirits, and job concerns remaining relatively steady, there is little reason to expect a dramatic shift in consumers’ spending.” However, Franco said June’s high confidence levels may be hard to sustain given that oil prices surpassed $60 a barrel for the first time in recent days. “This could take a bite out of consumer confidence,” Franco said, though she acknowledged that consumers so far have been able to weather oil price volatility well. Mark Vitner, senior economist at Wachovia Corp. in Charlotte, N.C., agreed that the runup in oil prices could cause confidence to slip. But he said he’s not worried as long as sentiment stays around the 90 to 105 level, consistent with moderate economic growth. Vitner added that the uptick in confidence offers reason to be optimistic about the Labor Department’s June job report, to be released July 8.
Deal’s implications
The deal is likely to have farreaching implications for the credit card industry, and could lead to other mergers of “monoline” credit