(COF) Capital One Acquires ING Direct USA

Capital One Financial Corp.(COF) announced an agreement to acquire ING Direct USA, the online banking unit of Amsterdam-based ING Groep NV (ING), in a stock-cum-cash transaction valued at $9.0 billion. The deal would catapult the company to fifth position from the present eighth, in terms of deposits in the U.S.

Earlier this month, Capital One and General Electric Co. (GE) had submitted their bids to acquire ING Direct USA. Other companies that had shown interest in acquiring ING Direct USA, were CIT Group Inc. (CIT), SJB National Bank, Ally Financial Inc. and Citigroup Inc. (C).

According to the condition with the European Union (EU) to get government bailout during the financial crisis, ING Groep is selling its U.S. unit. However, this deal would not affect ING Direct’s operations in Canada, Spain, Australia, France, Italy, Germany, the United Kingdom and Austria.

Terms of the Deal

Capital One stated that it would buy ING Direct for $6.2 billion in cash and $2.8 billion in stock. For this, Capital One will have to pay 55.9 million shares to ING. Price per share of $50.07 is based on the 10-day average of the company’s closing prices for the period ending June 15. This stock deal will make ING Groep the largest single shareholder in the company.

Capital One would finance the cash part of the deal mainly with the proceeds from public offerings of equity (approximately $2 billion) and debt (nearly $3.7 billion). The acquisition is expected to close late this year or early next year.

Additionally, in relation to ING Groep’s 9.9% stake in Capital One, ING Groep will be able to nominate one director to Capital One’s board of directors. This stake also has a customary lock-in period.

Furthermore, as a part of the agreement, Capital One and ING Groep also renegotiated a state guarantee of ING Direct USA’s Alt-A residential mortgage-related assets. Capital One would buy non-guaranteed portion (about one-fifth) of this portfolio and the remaining would be transferred to ING Groep for an equivalent amount in cash by the Dutch government.

The deal is still subject to regulatory approvals from the Federal Reserve and Dutch Central Bank.


Capital One anticipates the deal with ING Groep to be accretive to tangible book value immediately at the closing. It will also be accretive to EPS in 2012 and further, in 2013, the results would witness a modest betterment.

Additionally, Capital One expects that $90 million will be realized from the consolidation of the systems, corporate staff functions and platforms. Furthermore, the company also intends to get $200 million of funding saves annually by optimizing the management of the combined deposits. However, the company would incur $210 million of merger and integration related expenses.

Capital One would get $92 million in assets, including $40 million of mortgage loans, at the closure of the deal. ING Direct has about 7.7 million customers in its kitty, which would further enhance Capital One’s market share in online banking sector.

Beyond these figures, Capital One will also receive additional synergies from the cross-selling of ING Direct’s ShareBuilder online brokerage products to its customers. Further, the company will be able to provide its various products to ING Direct customers. Also, the company will get other added benefits from the balance sheet repositioning opportunities.

ING Direct mainly focuses on providing retail banking products, such as savings, payment services, mortgages, consumer lending and investment products, at a very low cost. These banking services complement Capital One’s financial products and services quite well. Furthermore, Capital One’s CEO Mr. Richard Fairbank commented that the company might open branches in selected areas having a large number of ING Direct customers.

Our Viewpoint

We believe with the addition of ING Direct USA, Capital One’s shareholders and clients will benefit over the long term. The combined company will create a valuable banking franchise to take advantages of a large number of branch banking in attractive high-growth markets and an online banking franchise with a national reach.

Currently, Capital One retains a Zacks # 2 Rank, which translates into a short-term ‘Buy’ rating. However, considering the fundamentals, we maintain a long-term “Neutral” recommendation on the stock.

CITIGROUP INC (C): Free Stock Analysis Report

CAPITAL ONE FIN (COF): Free Stock Analysis Report

GENL ELECTRIC (GE): Free Stock Analysis Report

ING GROEP-ADR (ING): Free Stock Analysis Report

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