Bank of America Corp. (BAC) Chief Executive Officer Brian T. Moynihan is unraveling yet another acquisition made by his predecessor Kenneth D. Lewis as the firm exits credit-card lending outside the U.S.
Moynihan agreed to sell the Canadian card unit, with $8.6 billion in loan balances, to Toronto-Dominion Bank (TD) and plans to leave the U.K. and Irish card markets, Charlotte, North Carolina-based Bank of America said today in a statement.
Moynihan, 51, has sold more than 20 assets or units since taking over for Lewis last year as the firm seeks to comply with new international capital standards and focus on corporate borrowers, investment banking and U.S. retail clients. The new CEO has been forced to write down credit-card and mortgage units acquired by Lewis, who spent more than $130 billion building the largest U.S. bank by assets.
“Bank of America is shrinking because they need to make sure they’re using their capital in the most profitable ways,” said Jefferson Harralson, an analyst at KBW Inc. with a “market-perform” recommendation on the bank. “During the Ken Lewis era you could run the bank with much lower capital -- the changes in capital requirements are pushing them to keep the most profitable customers and shed the rest.”
The sale announced today involves operations included in the $35 billion takeover of MBNA Corp. in 2006. Moynihan’s divestitures include First Republic Bank, acquired in the 2009 Merrill Lynch & Co acquisition, and stakes in asset manager BlackRock Inc. and Brazilian bank Itau Unibanco Holding SA.
TD said it is paying a “modest premium” of about C$100 million for the portfolio, including C$7.5 billion ($7.6 billion) in cash and assuming C$1.1 billion in liabilities.
Moynihan has had to write down the credit-card division by $20.3 billion in reports filed with financial regulators because of increased defaults and U.S. regulation limiting fees. Credit- cards in the U.S. remain a “fundamental core product,” Moynihan said today in a statement.
Moynihan has also written off the entire value of Countrywide Financial Corp., the home lender acquired by Lewis in 2008 for about $2.5 billion. Bank of America has scaled back home lending and is selling mortgage-servicing rights acquired in the Countrywide deal.
Bank of America climbed 57 cents, or 7.9 percent, to $7.76 in New York Stock Exchange composite trading at 4:15 p.m. The shares dropped by almost half this year through Aug. 12 on concern the bank would have to sell shares as costs from defective Countrywide mortgages drained capital. TD rose 96 cents, or 1.3 percent, to C$76.88 in Toronto.
Exiting the Canadian and European businesses would lower Bank of America’s capital needs by eliminating $27.6 billion of riskier assets and may help it avoid having to sell new shares, Ed Najarian, head of bank research at International Strategy & Investment Group Inc., said today in a research note.
Bank of America is mulling its options regarding the U.K. and Ireland businesses it is exiting, said Jerry Dubrowski, a company spokesman, declining to comment on what those options are. The TD transaction is expected to be completed in the fourth quarter, the company said in the statement.
The lender is retaining some reserves linked to the Canadian business, Dubrowski said, meaning that the purchase price “reflects the fair value of the business and is in line with other recent transactions.”
The portfolios in the U.K. and Ireland have a combined $19 billion in credit-card loans and more than 4,000 employees, the company said in the statement. It signed an agreement on Aug. 3 to sell the Spain card business to Apollo Capital Management Inc.
The lender will pursue the “aggressive selling of non-core assets to continue to generate capital, increase our focus and lower risk,” Moynihan said in a conference call last week.
Bank of America has to meet the Basel Committee on Banking Supervision standards designed to build a buffer against losses and prevent a repeat of the 2008 financial crisis. Moynihan has said the bank can avoid a share sale that would dilute investors’ holdings.
Toronto-Dominion, Canada’s second-largest bank, said it will become the largest issuer of MasterCard in Canada. Previously, the lender issued only Visa cards. TD had about C$8 billion in outstanding credit-card balances at the end of 2010.
In the U.K., Bank of America said it had a $769 million liability as of June 30 following an industrywide regulatory review into abuses tied to so-called payment-protection insurance, which can cover obligations on cards in case of illness or unemployment.
The company was among lenders required to examine sales practices and compensate customers “if evidence of a systematic breach of the newly articulated sales standards is discovered,” Moynihan’s firm said in a regulatory filing this month.
Customers who bought payment protection rarely compared prices and terms or switched providers, and usually weren’t aware they could buy it from a firm other than their lender, the U.K.’s Competition Commission has said. The Financial Services Authority introduced rules last year after it found banks reject more than half of payment-protection complaints they got, and some rejected “almost all of them.”
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