The Federal Reserve Board last week approved Capital One’s acquisition of ING Direct USA, a $9 billion deal adding 7 million customers and $80 billion in deposits to Capital One’s resource base.
The Fed’s go-ahead helps accelerate the growth of what was already the nation’s eighth-largest bank by deposits, and the 24th-largest depository organization by total assets, according to the Fed’s order.
CEO Richard Fairbank is calling the ING deal “one of the strategically most transformational things that’s ever happened in this company,” according to Bloomberg. And yet, it’s not even the most recent multi-billion dollar deal listed on Capital One’s corporate schedule.
In August, the Virginia-based firm announced it would be acquiring the U.S. credit card portfolio of London-based HSBC Holdings for $2.6 billion, increasing Capital One’s share of outstanding U.S. credit card balances from 7.7 percent to 11.8 percent and making it the nation’s fourth largest issuer.
The growth spurt presents obvious opportunities for corporate synergy; Fairbank has said he hopes to connect existing customers with ING’s ShareBuilder product, for example. But at the same time, Capital One’s back-to-back billion-dollar deals have made some consumers nervous.
Going forward, it appears Fairbank will have two major issues driving the conversation with concerned customers.
1. Too Big To Fail?
Back in September, Fed Chairman Ben S. Bernanke and Treasury Secretary Timothy F. Geithner received a letter from the National Community Reinvestment Coalition. In that letter, coalition CEO John Taylor expressed his organization’s significant concerns, and requested a “meaningful plan showing a true commitment to do more for the public” should the deal be approved.
Taylor and his team weren’t the only ones concerned about systemic risk. Last week’s Fed order confirmed significant concerns about a potential merger’s impact on “the financial stability of the U.S. banking or financial system,” citing hundreds of letters written by citizens.
Officially, the issue of risk is already in Capital One’s rear-view mirror. In Tuesday’s order, Fed officials decided that “considerations relating to financial stability are consistent with approval” of the ING deal. But Taylor’s group is not satisfied, and “is considering its options to challenge the approval,” Bloomberg Businessweek says.
2. ING customers “disappointed”
Since Capital One broke the news of a pending merger in June, customers at ING Direct have been taking to the Netherlands-based bank’s Facebook page, threatening to move their savings.
“Disappointed in the sell out to Capital One,” wrote a user named Lee Spivey. “One of the greatest appeals of ING is that you’re not one of the ‘stick-it-to-the-client’ creditors in U.S. Now I have to find another place.”
The consumer-level blowback prompted the New York Times’ Bucks blog to dedicate an entire post to the unhappy responses (1). “The main theme of the rants — er, posts,” wrote the Times’ Ann Carrns, “seems to be the concern that ING’s brand of low-fee, low-maintenance banking, combined with responsive customer service, would soon be a thing of the past under the new ownership.”
The rules say the customer is always right, but are ING depositors’ worries merited in this case? Greg McBride, a senior financial analyst with Bankrate.com says perhaps not.
McBride says the two new business bedfellows are more similar than different, in that each pays a high return on the deposit accounts managed over the internet. “Capital One is one of the most consistent top payers on deposits nationwide,” McBride said.
And while Capital One was founded as a credit card issuer in 1998, the company has been shifting its business focus to consumer banking for years. In its order approving the merger, the Federal Reserve revealed that Capital One’s credit card business represents just 28 percent of the company’s total assets.
On the other hand, consumers may be in for a dose of fee shock post-merger: Capital One’s $35 overdraft fee is significantly higher than the national median, which research group Moebs Services estimated at $30 in a study last month.
As Capital One continues to grow its business, the nation’s fourth largest credit card issuer will need to remain focused on managing risk and maintaining customer service to keep consumers smiling.
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