MBNA bidders seek assurances over future PPI liability

Bidders for MBNA, one of the UK's biggest credit card issuers, are trying to limit their exposure to future costs related to insurance mis-selling ahead of a likely 2019 deadline for compensation claims.

Sky News has learnt that parties including Lloyds Banking Group (Other OTC: LLOBF - news) and Cerberus, an investment firm, have been asked to submit revised offers for MBNA in about a fortnight amid stiff competition to acquire the business.

Sources said on Wednesday that a number of the bidders had been seeking to negotiate an indemnity for future payment protection insurance (PPI) costs with Bank of America (Swiss: BAC.SW - news) (BoA), MBNA's owner.

The attempts have been rejected by BoA, partly because a 2019 deadline for mis-selling claims and an advertising blitz to consumers ahead of that cut-off point meant there was likely to be a further spike in costs arising from consumers' efforts to seek redress, the sources added.

The 2019 deadline, which is due to be formally confirmed by the Financial Conduct Authority before the end of this year, is later than the industry had anticipated,

While MBNA's total PPI bill pales by comparison with those of the major high street banks, it has had to set aside more than £500m for the scandal in the last two years alone.

One source said that BoA's unwillingness to indemnify bidders against future PPI costs could concern financial regulators.

In addition to Lloyds and Cerberus, Santander UK (LSE: 44RS.L - news) has tabled a bid for MBNA, while HSBC has also examined whether to do so.

The absence of a PPI indemnity is likely to affect the price that bidders are ultimately likely to pay for the credit card giant, whose healthy profit margins have proved enticing to banks and private equity investors.

Lloyds' intention to make an offer for MBNA has prompted warnings from some City analysts that a deal could undermine its desire to pay a special dividend to shareholders at the end of the year.

MBNA's receivables portfolio is worth about £7bn, meaning that its sale by BoA would be the largest in the sector for years.

The company presented reduced profit forecasts to bidders in July, after an initial freeze in financing markets after June's EU referendum led BoA to consider aborting the auction.

A subsequent revival in debt markets provided confidence to both MBNA's owner and prospective bidders that they could finance a takeover.

MBNA's loan book is equivalent to roughly 11% of the UK credit card market, and it employs well over 1,500 staff at its base in Chester.

The company has more than five million UK customers, and issues cards under the brands of dozens of partners such as Virgin Atlantic Airways and the Premier League football clubs Arsenal and Liverpool.

It has sought to raise its profile through sponsorships of the Thames Clippers and Chester races.

MBNA says the company, which also issues cards branded with charities such as the British Heart Foundation, made a profit of £166m in 2015.

Its parent's plan to sell the business comes as demand for contactless payment products soars, with card-issuers scrambling to develop sophisticated mobile wallet services.

MBNA announced in March that it would begin offering Google's Android Pay service to consumers when it launches later this year.

A previous sale process in 2012 attracted interest from Barclays (LSE: BARC.L - news) , which owns Barclaycard, the UK's biggest credit card provider, and Virgin Money.

None of those involved in the auction of MBNA would comment.