banking presence in the affluent US markets of Maryland, Virginia
and Washington DC following its $520 million deal ($445 million in
cash and $75 million in stock) to acquire 244-branch-strong Chevy
Chase Bank, in the process becoming a top 10 US bank as measured by
Capital One said the Chevy deal will boost its 2009 earnings but
added it expects to incur around $225 million of charges linked to
the acquisition and integration costs. It also expects to
write-down about $1.75 billion on Chevy Chase’s $11.8 billion loan
portfolio, despite analyst comments suggesting eventual losses are
likely to exceed $2.25 billion.
Chevy Chase had been valued at around $2.5 billion only two
years ago, leading analysts to suggest the sale came close to a
distressed sale, principally as a result of Chevy’s portfolio of
adjustable rate mortgages. But overall, analyst sentiment towards
the deal was positive due to the Chevy deposit base and attractive
JPMorgan Chase – which has long been rumoured to be keen on
expanding its retail franchise into Washington DC – SunTrust,
BB&T and in particular Citigroup had all been linked with a
possible deal to acquire Chevy in recent weeks.
Once the deal is closed, Capital One’s deposits will total $109
billion while its managed loan-to-deposit ratio will be about 145
percent. The newly enlarged Capital One branch network will total
Capital One’s regional bank operation has grown rapidly,
following its 2005 and 2006 deals to snap up Hibernia, with
branches in Texas and Louisiana, and North Fork Bank, based in New
York and New Jersey.
The credit crisis has adversely affected Capital One’s card
operation, predomin-antly as a result of rising defaults. It raised
its provisions for bad debts in the third quarter by $208.6 million
to $3.5 billion, contributing to a 53 percent plunge in earnings
from continuing operations.
Capital One joins Wells Fargo and PNC in making high-profile
acquisitions following receipt of capital from the US government’s
bank industry bailout scheme.