Bank of America to buy MBNA

Bank of America Corp. will acquire MBNA Corp. -- the credit card giant that traces its roots to the Baltimore area, where it still has operations -- in a $35 billion cash and stock deal that will result in 6,000 job cuts nationwide.

The sale will shake up the credit card industry, likely leaving consumers with fewer choices and higher fees, experts said. And it will reverberate throughout Maryland's business and political establishment, which has long had ties to MBNA's current and former executives.


MBNA's move to Delaware in 1982 after a legislative dispute over a cap on credit card interest rates is remembered by many in Annapolis as one of the biggest political blunders in Maryland history.

During a New York news conference yesterday, Bank of America and MBNA executives said that they haven't determined where jobs will be eliminated but that they will target duplicating services such as personnel and administrative posts.


Together, the companies employ 200,000 people across the country, including 1,100 MBNA employees in Hunt Valley who work in telemarketing and customer service. Bank of America employs 3,540 at branches around the state and at a Baltimore headquarters. MBNA has more than 25,000 workers nationwide.

Some MBNA workers interviewed briefly at the company's Hunt Valley offices yesterday said they learned of the deal through news reports and a morning e-mail. They were not informed of specific job cuts.

MBNA's president and chief executive, Bruce L. Hammonds, said the sale to Charlotte-based Bank of America, the nation's largest retail bank, may have prevented larger layoffs as his company's growth was stagnating. MBNA is the nation's second-largest credit card issuer.

Hammonds will remain as head of the combined company's credit card division in Wilmington, Del., so a "significant" part of the business will stay where MBNA is based.

It took one week to cobble together the deal, after MBNA officials contacted Bank of America's brass to gauge their interest June 22. Days earlier, a helicopter carrying Hammonds and MBNA's vice chairman, Frank D. Bramble Sr., crashed into the East River near Manhattan. All aboard survived. Hammonds said yesterday that they had been meeting with financial advisers to discuss the company's options and were en route back to Wilmington.

The acquisition will reshuffle the credit card industry, making Bank of America the largest issuer in the United States, with 20 percent of the market. It also marks the culmination of years of consolidation that has transformed the banking industry.

Baltimore almost played a big role in that transformation.

It was politics that drove the company from Maryland, after lawmakers refused to deal with the credit card company. And it was the company's political ties that brought it back in 1997, with the establishment of a regional headquarters in Hunt Valley, which is threatened with layoffs.


The company's roots in the state date to the 1960s, when MNC Financial, the parent of Maryland National Bank, formed a small credit card company. The division thrived in Maryland until sky-high interest rates in the early 1980s led to a political showdown in Annapolis.

Lawmakers were seeking to protect consumers from the high interest rates being charged by banks and refused to lift a law restricting credit card rates. Company officials pushed for the change, but lawmakers were unmoved, setting up the company's departure to Wilmington, where Delaware officials had lifted restrictions.

Baltimore officials have watched with envy over the years as Charles M. Cawley, who retired as MBNA's chief executive in 2003, transformed downtown Wilmington with six opulent office buildings staffed with thousands of well-paid white-collar workers. The company is Delaware's largest private employer, with 10,680 jobs.

"I remember the attorney general saying, 'Oh, they're bluffing, they're bluffing,'" said Comptroller William Donald Schaefer, former mayor of Baltimore and Maryland governor. Schaefer tried to persuade lawmakers to keep the company from moving.

Despite some hard feelings, MBNA executives maintained ties to Maryland. Cawley and the company's executives have given generously over the years to Maryland politicians, most notably C.A. Dutch Ruppersberger, the former Baltimore County executive who is now in Congress.

It was Cawley's close friendship with Ruppersberger and former state Sen. Francis X. Kelly that helped drive MBNA's decision to locate an office in Hunt Valley. Ruppersberger worried for those jobs yesterday.


"I'm just very concerned whenever there's a merger," Ruppersberger said. "Bank of America understands how important those jobs are to us in Hunt Valley."

David S. Iannucci, executive director of Baltimore County's Department of Economic Development, said MBNA has been a significant player "in the corporate community -- philanthropically, and in their investments in Maryland and Baltimore County."

When he retired, Cawley left two Baltimore natives to run the company and its biggest divisions. Hammonds, a University of Baltimore graduate, took over as chief executive, and John Cochran, a graduate of Loyola College, replaced Hammonds as chief executive of MBNA America Bank.

Bramble, an MBNA vice chairman and former Baltimore bank executive, will serve on the merged company's board. Bramble retired from Allfirst Bank in Baltimore in April 2002 after it lost $691.2 million in a currency trading scandal.

The Baltimore trio will be left to grapple with merging MBNA into Bank of America at a tumultuous time for the industry.

As credit card companies consolidated -- the top 50 banks controlled about half the market three decades ago, and now 10 banks have a lock on nearly the entire market -- consumers have been hit with fewer choices and higher prices, said Robert Manning, an industry expert and author of Credit Card Nation.


MBNA's decision to sell to Bank of America signals that "the best of times for the credit card industry are over," Manning said.

In the transaction, which is expected to close in the fourth quarter, MBNA stockholders will receive 0.5 common shares of Bank of America for each of their shares, plus about $4.12 in cash. Based on Wednesday's closing price of Bank of America stock, the deal values MBNA at a 30 percent premium. The deal has been approved by both boards of directors and is subject to approval by regulators.

MBNA stock jumped after the announcement, closing yesterday at $26.16, or 24.16 percent up for the day. Bank of America shares fell 2.8 percent to $45.61.

For MBNA card holders, fees and rates are unlikely to change, and they will be getting new cards as the brand is replaced, Bank of America spokeswoman Alexandra Trower said.

Bank of America's chairman and chief executive, Kenneth Lewis, said the company plans to save $850 million over the next two years as it cuts the work force and eliminates overlapping technology and marketing.

Sun staff writers Laura Barnhardt, Lizzie Newland, Rhasheema A. Sweeting and Blanca Torres contributed to this article.


MBNA history

1960s: Maryland National Corp., the parent of Maryland National Bank, forms a small Baltimore credit card company called Charge-It that later is renamed MBNA Corp.

Early 1980s: Maryland banks lose battle to lift a law restricting credit card rates.

1981: Delaware passes the Financial Center Development Act, which does not limit credit card interest rates and fees.

1982: MNC Financial Inc., formerly Maryland National Corp., moves MBNA to Delaware. MBNA creates "affinity marketing" to build customer loyalty by selling credit cards linked to alumni associations and sports teams.

September 1990: Alfred Lerner, who sold Equitable Bancorp to MNC Financial in 1989, steps in to lead the financially strapped company as its chairman and chief executive.


January 1991: MBNA becomes a separate company when MNC Financial, which is troubled by real estate loans, splits it off through an initial public offering of stock, raising $1.1 billion. Lerner, who engineers the sale with other executives, is MBNA's chairman.

October 1993: MNC Financial is sold to Charlotte, N.C.-based NationsBank Corp.

Mid-1990s: MBNA grows into the nation's second-largest credit card issuer.

1998: San Francisco, Calif.-based BankAmerica Corp. and NationsBank Corp. merge to create Bank of America.

April 1997: MBNA opens its Mid-Atlantic regional office in Hunt Valley, hiring about 1,100 Workers.

December 2003: Charles M. Cawley, who led the move of MBNA from Maryland to Delaware, retires as chief executive. Bruce Hammonds takes over.


Late 2004: MBNA becomes the first bank to issue American Express-branded credit cards.

June 30, 2005: MBNA and Bank of America announce $35 billion merger.

Sources: Sun archives and MBNA