Charging forward MBNA: Success was in the cards for MBNA Corp., as the company has grown in 15 years from a bank spinoff to the world's second largest credit card company.

To hear Charlie Cawley tell it, MBNA Corp.'s 15-year rise from nothing more than a bank spinoff housed in a small, derelict former A&P; supermarket to the world's second largest credit card company didn't happen by design.

"We didn't have a grand plan," said Cawley, MBNA's president. "All we knew was we wanted to be the L. L. Bean of financial services companies."


But, as with L.L. Bean, the rustic clothier known for its customer ++ service, Wilmington, Del.-based MBNA's astronomical growth is no accident. Its success can be traced to shrewd marketing, a dedicated and well-compensated work force and a zealous -- even fanatical -- approach to gaining and keeping customers.

MBNA's success also stems from a series of innovations that have transformed the consumer finance industry, have been widely imitated by competitors and have earned MBNA a spot in the Fortune 500.


"Bankers are not notoriously creative people, so that worked as an advantage to us," Cawley said.

Its most recent innovation -- regionalizing operations -- is likely to have a significant impact on Baltimore's economy, when the company establishes the fifth in a series of regional headquarters this year.

By the end of the decade, Cawley estimates, the mid-Atlantic headquarters will create as many as 2,500 jobs for white-collar professionals. If the former Maryland Bank N.A.'s regional headquarters in Cleveland and Maine are any indication, its mid-Atlantic counterpart, to be headed by MBNA veteran and Baltimore native Frank Otenasek, could fill up to 500,000 square feet of office space.

By early next month, the company will likely decide to set up its local headquarters at a permanent location in Timonium or Hunt Valley, where it is considering buying an existing building or constructing a high-rise, MBNA executives acknowledge.

MBNA "will provide a terrific boost to the region," said Benjamin R. Civiletti, chairman of Baltimore law firm Venable, Baetjer & Howard and a former U.S. attorney general who sits on MBNA's board. "And it'll be nice to have an organization back here to expand in the environment of its origins."

Although MBNA was created in 1982, the company didn't create its own identity until January 1991, when then-troubled MNC Financial Inc. took the credit card company public, raising $955 million.

MBNA's results speak volumes. During the past five years, its net income has risen from $172.7 million to $474.5 million; managed loans -- the amount of credit card debt charged and not paid off by its customers -- have nearly tripled, to $38.6 billion; and total sales charged to MBNA cards has more than doubled to $48.6 billion at the end of last year.

Last year alone, MBNA added 9.3 million new customers, an industry record.


At the same time, MBNA has maintained its No. 1 ranking in earnings-per-share growth, return on average assets and return on equity for banks with $10 billion or more in total assets.

"They've defied the laws of economics," said David R. Martin, an analyst at Fitch Investors Service. "And I'm optimistic about their future, because they've maintained their pace of growth and credit quality, despite increased competition."

Along the way, MBNA has grown from 145 employees to more than 13,000 and become Delaware's second largest private employer. From its humble beginnings in a 19,000-square-foot former A&P; grocery store, MBNA occupies roughly 2.3 million square feet of office space in that state alone, and more is on the way, as contractors scurry to add buildings to the company's palatial Wilmington offices.

Much of MBNA's growth is serendipitous. Plastic has become the payment method of choice for many Americans, and debt levels on the nation's 502 million credit cards in circulation are at an all-time high, according to statistics compiled by RAM Research Group of Frederick.

In all, Americans owed $460 billion in credit card balances to companies such as MBNA at the end of November, up from $407 billion a year ago, according to the American Bankers Association.

How reliant have people become on credit cards? Consider that overall revolving debt, excluding personal home mortgages, stands at $1.19 trillion.


"What has differentiated them from the competition is they're not afraid to spend money to make money," said Moshe A. Orenbuch, a Sanford C. Bernstein & Co. Inc. credit card industry analyst. "And they provide a high degree of customer service in an industry not known for that."

But MBNA has distinguished itself in other ways, too:

It was the first stand-alone credit card issuer to become a public company, in January 1991. Since then, competitors First USA Inc. and Advanta Corp. have followed suit.

The company was the first to install 24-hour customer-service lines.

It has perfected, analysts say, the marketing of "affinity cards," whereby MBNA acquires exclusive rights to sign up customers with affiliations to sports teams and professional organizations.

The company pioneered converting credit card receivables into securities, which lessens the company's risk from default, a practice that has become widely accepted in the industry. The industry converted a record $49.6 billion to bonds last year, with MBNA leading the pack with $8 billion. In all, MBNA has converted more than $26 billion into securities for sale to investors, according to its most recent 10-Q filing with the Securities and Exchange Commission.


MBNA also was the first to bring in house many functions typically outsourced by credit card companies -- ranging from collections to marketing and advertising to data processing -- which the company says trims costs and improves quality.

Cawley, pointing a finger to his chest, takes credit for most of the innovations, such as 24-hour service, securitization and in-house support services. But mostly, Cawley says, MBNA strives to perfect customer service in any way possible.

Indeed, the desire for superior customer service is ubiquitous at MBNA. At MBNA's opulent new headquarters, replete with plush green carpeting and a handmade 1929 Duesenberg car in its lobby, signs above doorways read "Think of Yourself as a Customer," while others throughout remind employees that "Excellence Does Not Happen By Chance, It's a Choice -- Yours" and "Great Spirits Have Always Met With Violent Opposition From Mediocre Minds."

Customer service controls how many times a telephone rings at MBNA, while monitors drum into workers daily how they are performing on the company's 15-point scale. If standards are exceeded, employees are rewarded with a bonus. (On a recent weekday, the company's standards were being met 99.4 percent of the time.)

Cawley emphasizes that MBNA's employees are its most valuable asset, because they ensure customer happiness and, ultimately, shareholder return. That thinking governs MBNA's salary and bonus structure as well, which, at roughly $50,000 per employee per year in salary and benefits, is about one-third higher than that of the rest of the industry. Bonus pay often adds 15 percent to MBNA salary levels.

Cawley, by comparison, was paid $2.04 million in salary and bonuses in 1994, the most recent data available, according to an MBNA proxy statement filed with the SEC.


The decision to accent customer satisfaction dovetailed well with MBNA's affinity niche, in which MBNA gains exclusive rights to sign up members of groups, such as Georgetown University's Alumni Association -- Cawley's alma mater and MBNA's first affinity client -- in exchange for royalties. As a result, MBNA is able to charge slightly higher interest rates than competitors and maintain annual fees that many issuers have eliminated.

The group's members, in turn, are extremely loyal to their cards, default less and carry balances of roughly $3,000, nearly $1,000 more than the industry average.

MBNA's genius is that it has identified, organized and received endorsements from 4,500 groups to date, analysts say. Affinity cards have been created for groups such as Ducks Unlimited, Frank Sinatra fans, the American College of Surgeons and the Super Bowl XXXI champions, the Green Bay Packers.

A Baltimore Orioles card, featuring an aerial view of Oriole Park at Camden Yards, is carried by 25,000 fans, who receive perks such as autographed items, tickets and VIP prizes.

"The card keeps the Orioles in the hearts and minds of fans whenever they reach into their wallet or purse," said Scott Nickle, the team's director of marketing.

MBNA admits the affinity marketing costs more than most credit card companies traditionally spend -- analysts estimate 30 percent more -- but says that the extra expense pays off.


It must. While rewarding shareholders with rising dividends, MBNA also has lavishly spent on itself, acquiring four Gulfstream jets for corporate use and a fleet of antique automobiles.

MBNA has balanced the spending by supporting numerous charities as well. Last month, the company established a foundation that will provide $30 million in grants to Delaware schools and college scholarships for the state's students.

While refusing to disclose specific figures, Cawley said MBNA likely will be equally supportive of Maryland charities.

But MBNA may face socioeconomic and competitive challenges on a scale it has not had to face in its 15-year history.

For instance, despite the continued strong national economy, a record 1 million people filed for personal bankruptcy protection last year. At the same time, MBNA's delinquencies -- the percentage of accounts 30 days or more past due -- grew to 4.3 percent in the fourth quarter of 1996, compared with 3.7 percent during the same period of 1995. As a result, the company's net credit losses rose to 3.3 percent, up from 2.94 percent.

Cawley brushes away the concerns.


"We're more concerned with the industry than ourselves," he said.

MBNA also is expected to face more direct competition than it has in the past, thanks to Banc One Corp.'s planned $7.3 billion acquisition of First USA, a deal that would create the nation's third-largest credit card company.

MBNA has "had a wonderful ride, but that ride could get a lot bumpier from this point on," said Janet McCabe, a Legg Mason Wood Walker Inc. vice president and credit card industry analyst. "The other question is whether or not the affinity strategy has played out, and how many remaining groups have real credit-worthiness."

McCabe and others also predict that with heightened competition, MBNA's costs to acquire new accounts could go higher and cut into earnings.

Despite the ominous signs, Cawley predicts that MBNA will double its managed loan portfolio within three to five years, and that European and Canadian operations, together with forays into insurance and other consumer finance vehicles, will buoy profits.

"What we're building here is what we hope will be a company that lasts," Cawley said. "We've grown rapidly but deliberately. We don't lose control."


Top 10

The 10 biggest credit card issuers in terms of outstanding receivables in billions of dollars as of Dec. 31. Number of accounts, in millions, is as of Dec. 1.

Issuer ........... Outstanding ... Total

.................. receivables ... accounts

Citibank .......... $47.0 ........ 25.7

MBNA ............... 38.6 ........ 19.2


Discover ........... 36.6 ........ 38.9

Chase Man. ......... 24.7 ........ 16.7

First USA .......... 22.4 ........ 12.7

1st Chicago NBD .... 18.5 ........ 15.3

Household .......... 18.1 ........ 15.3

Advanta Nat'l ...... 12.7 ......... 5.6


AT&T; Universal ..... 13.5 ........ 18.0

Capital One ........ 12.8 ......... 8.4

Source: RAM Research Group

Pub Date: 2/02/97