Capital One Closes ING Direct Deal - Analyst Blog

Within a few days after receiving the Federal Reserve’s consent, Capital One Financial Corporation (COF) wrapped up the ING Direct USA deal, which the company had announced in June 2011. ING Direct USA is the online banking unit of the Amsterdam-based ING Groep NV (ING).

ING Groep had been asked by the European Commission to sell its online banking unit in return to get the approval for the €10 billion ($13.13 billion) state aid received in 2008.

As per the terms of the agreement, Capital One paid $6.3 billion in cash and $2.7 billion in the form of 54.0 million Capital One shares to ING Groep. The share offerings make ING Groep the largest single shareholder in the company, with 9.7% stake.

Moreover, with the addition of ING Direct’s deposits of about $83 billion as of December 31, 2011, Capital One now has nearly $200 billion as deposits. Hence, the company has become the 6^th largest bank in U.S. in terms of deposits.

Further, in connection with the completion of the deal, Capital One announced a few management changes. The company stated that ING Direct CEO, Mr. Arkadi Kuhlmann will now serve as a senior advisor to Capital One’s CEO and offer services for various initiatives, in addition to the integration of ING Direct. Additionally, ING Direct COO, Mr. Jim Kelly will lead ING Direct and report to Capital One's president of Retail and Direct Banking.

The closing of the transaction will barely have any impact on the customers. As an added advantage, ING Direct customers will now be able to have an access to Capital One’s ATM network, across the country. The customers of ING Direct will continue enjoying all the services that the company provides, even after the completion of this deal.

A Win-Win Situation

For ING Groep, the closure of the deal would improve ING Bank's core Tier 1 ratio by nearly 80 basis points, which will result into core Tier 1 ratio of 10.4% as of December 31, 2011. Additionally, with the proceeds of the deal, ING Groep will be able to repay some of its debt that it still owes to the Dutch government.

For Capital One, the deal will create a valuable banking franchise for taking advantage of the large number of branch banking in attractive high-growth markets and to gain from an online banking franchise with a national reach. Additionally, ING Direct, with about 7.7 million customers in its kitty, would further enhance the company’s market share in the online banking sector.

Capital One has been growing organically as well as through acquisitions. Since 2005, Capital One has integrated three banks – Hibernia Corporation in 2005, North Fork Bancorporation in 2006, and Chevy Chase Bank in 2009. Moreover, given its sound capital position and stable balance sheet, the company will be able to further de-risk its balance sheet, and provide its customers with better access to banking services.

Currently, Capital One retains a Zacks # 3 Rank, which translates into a short-term ‘Hold’ rating. Also, considering the fundamentals, we maintain a long-term “Neutral” recommendation on the stock.

CAPITAL ONE FIN (COF): Free Stock Analysis Report

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

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