In a move that could cost Banco Santander Central Hispano at least GBP289 million ($507 million), the Spanish bank is looking to purchase the credit card operations that MBNA Corp. bought from Santander unit Abbey National PLC's four years ago.

The Spanish bank has issued 15 million cards globally and is thought to be expanding Abbey's business by severing its ties with MBNA, the U.S. credit card operator, market sources said. Abbey sells credit cards that are both designed and produced by MBNA in return for a commission on each sale. According to market reports, if Santander intends to move ahead with expanding the Abbey business, it would have to buy back the credit card assets from MBNA. "I understand that Abbey is looking to buy back some' of the MBNA business - I don't know how much, although I can't imagine that this would have a significant impact on a lender the size of MBNA," said one source at Morgan Stanley.

But at the moment, details of the pending deal are sketchy, and sources say it's difficult to assess what exactly the impact of losing Abbey's cards will have on MBNA. One market source said that removal of the Abbey cards from the MBNA trust, assuming that they are already contained, is possible. "There is a seller's share of 12.3% - perhaps insufficient to make payment," said the source at Royal Bank of Scotland. "Given a minimum 4% seller share, GBP496 million ($870 million) could be released but this would leave the transaction in danger of a trigger breach. The next bond redemptions are due in September 2007 and February 2008, at GBP500 million each ($877 million)." Charles Peabody, a New York-based analyst at Portales Partners, noted in recent research that the loss of the Abbey business could cost MBNA - now owned by Bank of America - $48 million in profit and up to $170 million in revenue.

Abbey's credit cards are likely to exceed GBP500 million ($877 million) given the expansion and starting size, said the market source at RBS. "From a credit standpoint, I wouldn't expect any significant changes as the [MBNA] trust is almost GBP6 billion ($10.5 billion), and the assets are unlikely to significantly differ from the average," he said.

Morgan Stanley made a similar announcement before last Christmas regarding its agreement to buy Lloyds TSB Goldfish credit card business in a cash deal valued at nearly GBP1 billion ($1.7 billion), which is expected to add on another 800,000 accounts to Morgan Stanley's 1.5 million credit card accounts. According to sources at the bank, receivables will increase to approximately GBP2.3 billion ($4.0 billion) from GBP1.5 billion ($2.6 billion).

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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