15 September, 2010

United States Bank Mergers & Acquisitions (Capital One Financial)

Photo: A Capital One Bank at the corner of 5th Avenue and West 37th Street in Manhattan. Capital One gained a significant foothold in New York and New Jersey when it acquired North Folk Bank in 2006.

Capital One Financial Corp.

Capital One can trace its history to the credit card division of Signet Bank, a major bank in the state of Virginia. (Following a few consolidations, Signet Bank has since been integrated into Wells Fargo.) In 1988, Signet adopted a credit-card specialty system developed by Richard D. Fairbank and Nigel W. Morris that manages card products, marketing and pricing strategies, default risk, customer service and technical operations. The new system was a huge success and Signet Bank greatly expanded its credit card portfolio by launching the balance-transfer “teaser” offer in 1991. This strategy involved enticing clients of other credit cards to transfer their unpaid balances to Signet’s credit cards by offering temporary super-low interest rates (the “teaser rates”).

Signet then entered the so-called “sub-prime” market segment by offering credit cards to individuals with flawed credit histories who normally would not qualify for a credit card. While these clients have higher default risks, they are also charged higher interest rates on their unpaid balances. As long as the higher-risk portfolio is carefully monitored, the issuer can gain market share and maintain profitability.

In late 1994, Signet Bank decided to focus on its traditional branch banking operations and sold an 11.5% stake of its credit card division named Oakstone Financial to the public in an IPO. Early in 1995, the rest of Oakstone Financial was distributed to Signet’s shareholders and Oakstone thus was fully separated from Signet Bank. At the same time, Oakstone Financial renamed itself Capital One Financial Corp.

During the boom times from mid-1990s to 2007, Capital One quickly became one of the largest credit card issuers in the United States as American consumers simply became accustomed to using lines of credit, personal loans and credit cards to buy things that they didn’t have the cash for. The bank also launched local credit-issuing subsidiaries in Canada and Great Britain.

Capital One became a “brick-and-mortar” bank in 2005 when it acquired Hibernia National Bank.

Recent transaction(s):
  • In 2004, North Folk Bancorporation bought GreenPoint Financial Corp. for USD $6.3-billion. The newly-enlarged North Folk now had more than 340 branches in New York/ New Jersey area.
  • In 2005, Capital One acquired New Orleans-based Hibernia Corp. / Hibernia National Bank for USD $5.3-billion. Hibernia National operated over 300 branches in Louisiana and Texas. The purchase of Hibernia National represented the first major entry into retail banking for Capital One, which had previously been a consumer finance lender and credit card issuer.
  • In 2006, Capital One bought New York's North Folk Bancorporation for USD $14.6-billion. North Folk was the No. 3 depository institution in the Greater New York/ New Jersey area.
  • In 2007, at the start of the great real estate bust and banking crisis, Capital One shut down its sub-prime mortgage unit GreenPoint Mortgage.
  • In November 2008, Capital One acquired privately-held Chevy Chase Bank for USD $445-million in cash and 2.56-million shares, valuing Chevy Chase at USD $520-million. Capital One immediately took a USD $1.75-billion mark-down to account for potential losses from Chevy Chase’s bad loans. Chevy Chase was based in Bethesda, Maryland, and served 1 million clients through 250 branches and 1,000 ATMs in Maryland, Virginia and the District of Columbia area.
  • Following the lead of Britain’s GBP 37-billion (USD $64-billion) partial nationalization of The Royal Bank of Scotland Group, HBOS and Lloyds TSB Group, the U.S. government unveiled a similar plan on 2008-10-14 under which the U.S. Treasury injected USD $250-billion into nine major U.S. banks in exchange for their interesting-bearing, non-voting preferred securities. The nine banks that received a total of USD $250-billion Troubled Asset Relief Program (TARP) funds were: Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, Goldman Sachs, Morgan Stanley, Merrill Lynch, Bank of New York Mellon, and State Street. Other American banks later joined the TARP program and Capital One received USD $3.6-billion from the U.S. Treasury. The bank, however, redeemed the preferred securities and paid back the state aid in June 2009.
  • In October 2010, Capital One acquired the Hudson'a Bay Company credit card portfolio from the General Electric Co. The transaction involved CAD $1.3-billion (USD $1.3-billion) in receivables and 400 employees. The Hudson's Bay Co. is North America's oldest corporation, having been founded in 1670 by English King Charles II. It operated 600 high-end and discount department stores across Canada as of 2010.
  • In June 2011, Capital One agreed to acquire U.S. on-line bank ING Direct USA from ING Groep for USD $9.0-billion (Eur 6.3-billion). Capital One would pay USD $6.2-billion in cash and USD $2.8-billion in shares. Following the purchase, ING would hold a 9.9% stake in the U.S. lender. Capital One, which began mainly as a credit-card issuer, has been transforming itself into a retail bank in recent years. Already the 8th or 9th largest bank in the U.S. based on deposits, the ING Direct USA purchase would push Capital One up to the 5th or 6th largest with over 7-million new clients and USD $82-billion of new deposits.
  • In August 2011, Capital One bought a vast majority of HSBC's U.S. credit card operations for USD $32.7-billion (GBP 20.15-billion, HKD $254.86-billion). The amount represented a premium of USD $2.6-billion over the portfolio's book value. The purchase was the latest aggressive expansion for Capital One as European banks retreated from their disastrous forays into the U.S.
  • In February 2013, Capital One sold its Best Buy-branded credit card portfolio to Citigroup at book value of USD $7-billion.  Capital One cited a misfit of the card portfolio with the rest of its card products as the reason of the sale.
  • In August 2015, Capital One agreed to buy General Electric Co.'s healthcare financial services unit for USD $9-billion.  The transaction involved USD $8.5-billion of loans made to a wide array of sectors including senior housing, hospitals, medical offices, outpatient services, pharmaceuticals and medical devices.

Click here to return to the Index page.