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February 8, 2012, 11:48 AM
Capital One’s ING Deal Decision Looms Today
By David Benoit
The Fed is expected to decide today whether to approve Capital One’s purchase of the massive online banking operations of ING Direct USA, nearly eight months after deal was struck.
Bloomberg News
The $9 billion purchase of the online bank is expected to boost Capital One to the fifth-largest U.S. commercial bank by deposits.
The deal’s journey, even with eventual approval long expected, has clouded the picture for bank M&A, adding to the already uncertain environment. It is the first time the Fed has used the new lenses given to it for examining deals by the Dodd-Frank financial reforms. The rules looked to make megabanks extinct going forward.
A flurry of deal making among banks has long been expected, given the well-acknowledged glut of banks across the country, but tepid results in banking and increased scrutiny have largely kept the deal taps dry.
Capital One’s deal caught community groups’ attention and dragged up concerns about banks getting too big, given it is the biggest bank deal since the crisis. The publicity, and calls from lawmakers including Rep. Barney Frank, led the Fed to hold the first public meetings about a proposed bank merger in years, catching Capital One by surprise.
Capital One’s attempt to separately purchase the credit-card operations of HSBC has drawn similar attacks.
The Independent Community Bankers of America, an influential banking group, said the Fed shouldn’t approve any big bank deals until regulators finish creating the rules from Dodd-Frank.
Rev. Jesse Jackson called into question Capital One’s credit-card operations at a meeting, saying giving the bank billions more in deposits would lead to more costly credit cards for vulnerable borrowers.
“As Capital One vacuums up safe bank deposits, it spits out higher risk credit cards,” said Jackson, founder and president of civil rights group Rainbow PUSH Coalition. “It is clear that Capital One has no commitment to legitimate community banking.”
Others have argued that Capital One doesn’t do enough in home lending in lower-income areas. The National Community Reinvestment Coalition alleged Capital One fails to meet equal-lending statutes by refusing to issue subprime mortgages.
In response, Capital One has adamantly denied that its credit-card lending is dangerous and maintained that it doesn’t see subprime mortgages as financially sound banking.
It then moved to appease community groups by pledging massive donations. The bank said it would invest $180 billion over the next ten years into low and moderate-income communities if the ING deal is approved.
The bank did get on its side House Financial Services Committee Chairman Spencer Bachus, who wrote Fed Chairman Ben Bernanke a letter telling him to get a move on approving the deal.
And analysts have largely expected the Fed to approve the deal. Morgan Stanley wrote in a research note earlier that approval was expected because Capital One is well stocked with liquidity.
KBW analyst Sanjay Sakhrani says the public expectation is for an approval, given the deal could help Capital One make more consumer loans in its credit-card operations and given that Capital One, while becoming on of the largest banks, would remain far away from the top four banks. He said approval would be a good data point for banks looking at making acquisitions going forward.
Capital One