Lloyds Banking Group (LYG) announces that it has agreed to acquire MBNA Ltd, a UK consumer credit card business, from FIA Jersey Holdings Limited, a wholly owned subsidiary of Bank of America (BAC).

The transaction is consistent with the Group’s stated strategic ambitions of growing in Consumer Finance and will enable the Group to enhance its position and offering within the UK prime credit card market. The acquired MBNA business, which comprises gross assets of c.GBP 7bn, is expected to deliver strong financial returns and create significant value for shareholders. The transaction is expected to complete by the end of the first half of 2017, subject to the receipt of competition and regulatory approval, and is expected to deliver: an underlying Return on Investment that exceeds Cost of Equity in the first full year and increases to c.17% in the second full year following the acquisition; c.3% and c.5% statutory EPS accretion in the first and second full years following the acquisition.

The transaction will deliver a GBP 650m per annum increase to Group revenues and will enhance Group net interest margin by c.10bps per annum. There is also significant opportunity for cost synergies, currently expected at c.GBP 100m run rate per annum within 2 years, representing c.30% of the 2015 MBNA cost base. The transaction is being funded through organic capital generation and is currently expected to utilize approximately 80 basis points of Common Equity Tier 1 capital, which through this acquisition will further enhance future earnings and capital generation.

The Group continues to deliver strong underlying and statutory performance with strong capital generation. As a result the Group remains confident in delivering a progressive and sustainable ordinary dividend in 2016 and continues to target a payout ratio of at least 50 per cent of sustainable earnings over the medium term. In line with our policy, the Group’s approach to surplus capital distribution at the end of the year will give due consideration to the Board’s view of the current level of capital required to meet regulatory requirements, cover uncertainties and grow the business, which will include the capital impact of this transaction.