Bank of America Corp.'s acquisition of MBNA Corp. generally has been viewed in a positive light, with the buyer and industry observers saying the acquisition has generated benefits on the cost side and some opportunities on the sales side.
But by one measure, B of A's card operation has fallen behind those of other companies. Last year, a year when the biggest bank issuers were registering gains in card accounts considered active, B of A's active card accounts fell sharply.
At yearend, B of A had 74 million accounts, but only 43% of them, or 32.1 million, were considered active, according to data collected from issuers by the industry newsletter The Nilson Report.
At the end of 2005, B of A had 73.4 million accounts, and 57.1% of them, or 41.9 million, were active, according to the newsletter, which defined "active accounts" as those that had a balance. The MBNA purchase closed Jan. 1, 2006, and The Nilson Report numbers for the end of 2005 combine figures from B of A and MBNA.
In contrast, JPMorgan Chase & Co., the top issuer in the banking industry last year, had 79.5 million accounts, 59.1% of which were active. In 2005 it had 72.3 million accounts, 60.6% of which were active.
At yearend Citigroup Inc. had 71.5 million accounts, 67.8% of which were active. The percentage dipped slightly from 2005, when 68% of Citi's 71.5 million accounts were active.
B of A would not discuss the numbers, but industry observers identified a couple of possible causes for the divergence of its performance.
One had to do with the departure of some MBNA agent bank customers that were leery of keeping those relationships with B of A. They included Wachovia Corp., which said in November 2005 that it would begin issuing cards in-house; PNC Financial Services Group Inc., which said in August 2006 that it would move its portfolio to U.S. Bancorp; and SunTrust Banks Inc., which announced plans in December 2006 to move its portfolio to InfiCorp Holdings Inc.
Gwenn Bezard, a research director at Aite Group LLC in Boston, said that MBNA's agent bank portfolios tended to have "lots of good, active customers." Many of MBNA's own customers skewed toward affinity cards, which tended to be used less frequently, he said.
Bruce Cundiff, a senior analyst for Javelin Strategy and Research, agreed that MBNA's wide range of cobranded affinity cards with organizations such as universities and sports teams are popular with consumers but do not always hold the coveted "top-of-wallet" position.
"Potentially those are my second, third, or fourth card that I choose when I use it," he said.
Dan Schatt, a senior analyst for Celent LLC, said that people who monitor their finances online are "more inclined to use a bank card that's associated with your bank account, that you can track and control, than a stand-alone, national card that's not associated with your bank directly."
As a result, the MBNA acquisition "doesn't necessarily translate into more active credit card usage" for B of A if the cardholders did not have accounts there.
Despite the falling active-card rate, by many accounts the MBNA purchase has been a success for B of A. Analysts have said the purchase has helped the Charlotte company boost its card revenue and capitalize on the economies of scale that came from combining two major issuers.
Kenneth D. Lewis, B of A's chairman, president, and chief executive, said in his company's first-quarter earnings call in January: "The integration of MBNA was quite successful. We materially accelerated our cost savings with MBNA. In addition, we had revenue growth due to the promotion of affinity cards."
Still, the platform integration project last fall did not go off without a hitch. After the conversion some MBNA cardholders complained that they could not view their statements online.
David Robertson, The Nilson Report's publisher, speculated that another reason B of A's cards may be used less frequently is because customers remain particularly attracted to reward programs affiliated with airlines. He noted that Citi works with AMR Corp., the parent of American Airlines, and that JPMorgan Chase with UAL Corp., the parent of United Airlines.
At one time B of A had deals with both U.S. Airways and America West Airlines, which merged in 2005 to create US Airways Group Inc. That year, when the airline's contract with B of A was nearing its end, US Airways Group jumped to Juniper Financial Corp., a Wilmington, Del., unit of Barclays PLC. B of A filed a breach-of-contract lawsuit against US Airways in October 2005. That case is pending.
