WASHINGTON (AP) — Shares of Capital One Financial Corp. rose in trading Wednesday after the bank received approval from the Federal Reserve to buy ING Direct.
THE SPARK: Capital One said in June it would buy the U.S. digital banking arm of Netherlands-based ING Groep NV for $9 billion. Under the terms of the deal, ING Groep will receive $6.2 billion in cash and $2.8 billion in Capital One shares. That will make ING the largest single shareholder in the McLean, Va.-based bank.
The Fed decision was originally expected last week and was delayed again on Monday, sparking some concern that the deal might be rejected. Consumer advocates and community banks had raised objections to the deal, maintaining that it would create another "too big to fail" bank that relies too heavily on volatile credit cards. Capital One depends on its credit card business — known for its ubiquitous "What's in your wallet?" advertising campaign — for about 65 percent of its revenue, and has plans to buy the U.S. credit card arm of Britain's HSBC.
The bank said after the decision was announced late Tuesday that it expects the deal to close in a few days.
THE BIG PICTURE: Capital One aims to use the acquisition to increase its profile as a national bank without adding to its roughly 1,000 branches. ING Direct has about 7.5 million customers. CEO Richard Fairbank has told investors Capital One views those customers, which are considered very loyal to ING, as a prime target for "cross-selling," or pitching other products from Capital One such as its credit cards.
THE ANALYSIS: Citi analyst Donald Fandetti said the deal bolsters Capital One's deposits, which will rise to over $200 billion and make it the fifth-largest bank in the U.S. He said that investor reaction to the news may be tempered by its plans to purchase HSBC and its $30 billion credit card portfolio, which will increase the bank's existing credit card portfolio by about 50 percent.
Fandetti kept a "Buy" rating and $58 target price on the stock. He called Capital One shares "the most mispriced stock" he covers, and said it is his top pick for 2012.
SHARE ACTION: Shares rose $1.64, or 3.4 percent, to $49.62 in midday trading. The stock has moved between $35.94 and $56.26 in the past 52 weeks, and ended Tuesday's session up more than 13 percent since the start of the year.
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