MNC Financial Inc., unable to complete a timely sale of its credit-card division at a sufficient price, has announced it might try to sell the prized subsidiary to the public for as much as $1.13 billion.
The financially troubled company, parent of Maryland National Bank and American Security Bank in Washington, said it filed documents with the Securities and Exchange Commission that would allow it to sell MBNA Corp., the Delaware-based credit card company now known as MBNA America Bank N.A.
No decision on whether to launch an initial public offering of MBNA has been made, the company said, and such an offering will not proceed if MNC reaches an agreement to sell its subsidiary in a private transaction.
If MBNA is spun off as a publicly traded company, MNC said it will sell 36 million shares of MBNA stock domestically and 9 million overseas. The company has hired Goldman, Sachs & Co. to handle the sale of MBNA.
MNC, which declined to elaborate, said the "filing was made to expand MNC's options with respect to the disposition of MBNA America," according to its announcement made late Monday.
MBNA, the nation's fourth-largest credit card operation, issues MasterCard and Visa credit cards and is considered MNC's crown jewel with more than $6.8 billion in total receivables.
MBNA earned $108.3 million during the first nine months of this year, up from $64.8 million for the same period in 1989, according to the SEC filing. The subsidiary also paid a dividend to MNC of $19.4 million Oct. 1, the SEC document said.
But the sale apparently has bogged down since it was first announced Oct. 25.
According to the SEC filing, MBNA would not meet all capital requirements at the end of the year without either the sale of stock or the additional sale of credit card loans "and other capital initiatives."
MBNA expects to declare a dividend to stockholders for the second quarter of next year, the SEC filing said.
MNC's decision to sell MBNA was a response to growing concern at the company that a planned $180 million capital infusion by Chairman Alfred Lerner might not be sufficient to meet the cash requirements at the banking company.
With $242 million in losses so far this year because of troubled real estate loans, MNC decided to shed its credit card division and assorted leasing subsidiaries as a means to raise much-needed cash.
In addition to nearly $1 billion in commercial paper that was repaid, MNC still must buy back $823 million in debt over the next few months.
The company, unable by Monday to raise $300 million that was required under a $750 million line of credit, received a four-day extension to complete an agreement with its lenders.
Not only is the market awash in credit card receivables for sale, many
of the nation's largest banks facing their own crunch in a declining economy, with the result that few potential buyers are thought to have the cash needed to purchase MBNA in its entirety.
In addition, credit card delinquencies have increased this year and are expected to increase further, making the purchase of credit card portfolios less attractive.
MBNA reported that delinquencies in its portfolio increased to 4.05 percent of average managed loans Sept. 30, down from 3.29 percent a year earlier, while net credit losses rose to 2.16 percent from 2 percent last year.
The company also said its nonperforming loans totaled $21.3 million at the end of the third quarter, up from $8.6 million a year earlier.