Dear Mr. Berko:

I want to buy 200 shares of MBNA. What do you think of the company at this price? How do you assess its future earnings over the coming four to six years?

T.K., Gainesville, Fla.

Dear T.K.:

MBNA Corp. (KRB-$25.16) has $146 billion in total assets, 1.25 billion shares outstanding and is the largest lender in the United States via MasterCard and Visa bank credit cards. KRB, with 28,000 employees (including MBNA Europe and MBNA Canada), is also the largest issuer of “affinity” cards in the world.

Affinity cards are marketed via endorsements of membership associations, which are tithed each month when you pay your credit card bill. Member organizations (NASCAR, Major League Baseball, Protect the Nauga, Florida State University, the National Union of Federated Associations, etc.) personalize their cards, and when a cardholder creates a charge, a small jot of change accrues to that organization.

This is an ingenious concept. Credit card users are better and more loyal customers if their cards represent a group with which they identify. Cardholders seem more willing to spend if they know that a smidgen of their spending benefits their organization. MBNA, which issues cards for more than 4,500 “affinity organizations,” might also have the best customer profile (next to American Express) in the business.

The typical customer is a homeowner, has been employed for at least 11 years, has an 18-year credit history and earns $71,000 annually. MBNA has the lowest cardholder attrition as well as the lowest delinquency rate, so it enjoys the rare privilege of being selective in approving card applications.

In addition to its affinity card business, KRB is also the parent of MBNA America NA (Delaware) a national bank that provides mortgage loans for homes and business property, aircraft loans, business inventory loans, certificates of deposit, checking accounts, installment loans and various insurance products.

Domestic growth in this business is now moving at a crawl. Most U.S. cardholders (including MBNA’s) are in hock up to their hairlines, and issuers are going to be hard pressed to maintain earnings progress. However, it appears that MBNA Europe (Canada too) might come to the rescue. Most Europeans have not been introduced to the American aphrodisiac called “buy now pay later.” Those poor Spaniards, Czechs, Italians, etc. won’t know what happened to their money as KRB cleverly teaches them the finer points of “abusing” their credit and living way beyond their incomes. In a dozen years or so, many Europeans will be working two jobs to pay for their new toys and vacations, plus a cornucopia of delights and previously forbidden fruits.

KRB also is planning to enter the Chinese market, which (at first glance) offers unimaginably promising opportunities. Increasing market share in these countries should help sustain MBNA’s double-digit growth for at least six to nine years.

Though early indications are that MBNA is doing splendidly overseas, I’m reluctant to assume long-term successes based on short-term results. It’s reasonable to believe that MBNA could experience some hard losses as it adjusts its underwriting policies in these new international markets.

I think KRB is a dynamite company. A purchase of 100 shares 10 years ago at $25 a share is now 760 shares (after five 3-for-2 splits) worth $19,000, which does not include dividends. In that decade, KRB’s assets have grown almost eightfold, net income has grown more than tenfold, book value has risen nearly thirteenfold, return on assets has increased 60 percent, and the dividend has increased from a miserly 9 cents to 48 cents.

However, I have two concerns about KRB’s future. State regulators and Congress are taking a hard look at eliminating the high punitive charges for late payments, bounced checks, etc. that constitute a significant portion of KRB’s income. If that happens, it would stifle KRB’s growth.

My second problem is with management. Though their successes have been enormous, their paychecks have been “enormouser” by orders of magnitude. Management is a poster child for corporate excesses. Five of KRB’s top executives each received more than $30 million in salaries, bonuses and grants of restricted shares last year, and if I were a shareholder, I’d consider that a personal affront as well as scurrilously and egregiously obscene. Then there are management’s free-spending ways on perks, privileges and personal prerogatives. One would think the bosses believe they were anointed to their positions rather than appointed by shareholders.

At $25.16 I think KRB is priced about 25 percent too high for my comfort and $19 to $21 is a more reasonable number. I recommend that you buy 100 shares now and place an open order to purchase your second 100 shares at $20.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.