Capital One’s Fairbank Ramps Up ‘Empire Building’ With $9 Billion ING Deal
Capital One Financial Corp. (COF) Chief Executive Officer Richard D. Fairbank, who’s making the largest U.S. banking acquisition since 2008, has built the Virginia- based credit-card lender into one of the nation’s biggest consumer-financial companies.
Fairbank, Capital One’s CEO since it became an independent company in 1994, announced the purchase of ING Direct USA for $9 billion yesterday. The deal, following the $14.6 billion purchase of North Fork Bancorp in 2006, would make Capital One the sixth-largest bank by deposits, up from seventh.
“This is empire building at its best,” said Michael Taiano, a Sandler O’Neill & Partners LP analyst in New York, who added that his view of the deal improved amid speculation that Capital One will acquire other assets to go with ING’s deposits. “There is some status that comes with being a big bank.”
The deposit boost may help McLean, Virginia-based Capital One, which derives more than half its revenue from credit cards, to diversify its funding base and acquire a portfolio of assets, analysts said. Capital One will pay $6.2 billion in cash and $2.8 billion in stock, giving ING a 9.9 percent ownership stake, the companies said in statements.
“I would suspect this would tie together with an acquisition of a loan portfolio,” said Jonathan Hatcher, a credit strategist at Jefferies Group Inc. in New York who covers financial companies.
Fairbank transformed Capital One through a succession of deals. The purchase of North Fork added more than $35 billion in deposits and catapulted the lender into the top 10 U.S. banks. He also made a $4.9 billion acquisition of Hibernia Corp. in 2005 and in 2008 agreed to a $525 million deal for Chevy Chase Bank. With the ING purchase, Capital One gains access to 7 million customers.
“Capital One is one of a handful of banks that’s breaking away from the pack by building a very large customer base,” Fairbank said in the conference call. “ING Direct offers a dramatically more efficient way for us to get national reach and establish a strong national banking franchise.”
The acquisition may also allow the company to tap into what it calls a younger and more affluent clientele. ING uses the Internet to attract customers and has just seven U.S. outlets, which are modeled after coffee shops, according to its website. The ING Direct Cafes provide coffee, free Internet access and baristas who know about the bank’s offerings.
Vikings on TV
“Capital One has been successful at developing the brand, with TV commercials” and other strategies, Hatcher said. “ING made mistakes because they had to generically deploy the funds. They didn’t have all the lending angles that Capital One has.”
Capital One’s television ad campaign features Vikings in commercial settings using the bank’s card and asking viewers, “What’s in your wallet?”
He’s also made some missteps. Fairbank acquired North Fork and its home-lending unit, GreenPoint Mortgage, at the tail end of a five-year boom in home sales. In August 2007, the bank shut GreenPoint, triggering charges of about $860 million.
“He can obviously make decisions and has not made an acquisition as bad as say, Wachovia buying Golden West, but he has still managed to put the company at significant risk at times,” Townsend said. “I don’t think they really understood North Fork when they bought it.”
Townsend said Capital One may be overestimating the attractiveness of the ING deposits, some of which aren’t considered a stable source of funding. Capital One said customers left ING at an annual rate of 5.8 percent between 2007 and 2009, lower than the national average of 16.2 percent.
“Because of the low cost and sticky nature of the deposits, the ING Direct acquisition economics work with no need for loan growth beyond our existing plans,” Fairbank said in the conference call.
Any past mistakes haven’t weighed on the stock this year. The shares have gained 15 percent in 2011, compared with a 10 percent decline for the 24-company KBW Bank Index. Capital One climbed 2.4 percent to $49 yesterday on the New York Stock Exchange following reports it was close to announcing a deal.
The stock performance has helped Fairbank, who is paid with shares and options. He hasn’t received a salary, bonus, retirement contributions “or other more traditional forms of compensation” since 1997, company spokeswoman Julie Rakes said in a January 2010 e-mail. Fairbank received compensation worth $14.9 million in 2010, according to a filing from the Securities and Exchange Commission. Rakes didn’t return an e-mail seeking an interview with Fairbank.
“He started from scratch,” Taiano said. “There have been opportunities to sell along the way but I think he thinks there is more upside by staying independent.”