Capital One Spends Big on ING Groep

It was revealed on Wednesday that Capital One Financial (NYSE: COF) has won approval from the Federal Reserve to go ahead with its plans to purchase ING Groep NV's U.S. online bank, which clears the way for COF to add approximately $80 billion in deposits.

According to Bloomberg, the Fed said in a statement on Tuesday that, “The board's action directed Capital One to take specific steps to ensure that its risk-management functions, including compliance, are commensurate with its new size and complexity.”

COF seems to be determined to expand its business by acquiring as many companies as it can get its hands on right now. Apparently, no bank or credit provider, online or otherwise, is safe, although it is doubtful that Capital One will be making any moves on American Express (NYSE: AXP) any time soon. Rather, a deal to acquire for HSBC (NYSE: HBC) is mooted to be next.

Originally announced in June, the ING deal will add more than 7 million customers to Capital One's portfolio. As a result though, costs rose 25 percent in 4Q as COF prepared by improving and expanding infrastructure and technology systems.

COF currently gets more than 50 percent of its revenue from credit cards, and it is buying ING Direct USA for $9 billion. The acquisition will make COF the fifth largest lender by U.S. deposits.

Richard Fairbank, Capital One's Chairman and CEO, said on February 8 at an investor conference that, “The ING deal is going to prove to be one of the strategically most transformational things that's ever happened in this company. It is a very low-cost way for Capital One to become a national player in banking.”

Following the news of the Federal Reserve approval, COF saw shares climb 2.3 percent on Tuesday to $49.06. The stock had previously dropped 2.1 percent since the ING acquisition was originally announced back in June.

Not everyone is happy about the Federal Reserve's decision though, with John Taylorm the coalition's CEO, saying back in September that the deal should only be allowed to proceed if COF implements a “meaningful plan showing a true commitment to do more for the public.”

On Tuesday, Taylor said in a statement that, “We're extremely disappointed in today's decision.”

In a research report on Wednesday, Bank of America Merrill Lynch said that COF's January credit results were stronger than anticipated and should contribute to investor's confidence that favorable credit trends continue across most of COF's major businesses in 2012. “On the credit front, US Card losses came in better than expected, up only 10bps and reaching 4.08% vs. our 4.15% forecast. Auto and International also witnessed favorable trends, reversing course and declining MoM.”

On the ING deal, Citi said on Tuesday that it expects the deal to close in a matter of days and it removes some uncertainty around the stock. “With ING Direct on track for a closing, the focus now shifts to the HSBC $30 B card portfolio acquisition which should close in early Q2'12. Combined, these deals drive ~16% earnings accretion (down a bit from our previous estimate as we penalize deal upside for a portion of the higher exp run-rate disclosed in Q4).”

Citi also noted that COF can now turn its attention to a possible deal with HSBC set to close in Q2. The acquisition, it said, will add near $30B of card receivables which increases their existing US card portfolio by 50+%. As part of the acquisition, COF plans to issue $1.25B of equity.