Capital One expands credit card business

August 11, 2011
By Times-Dispatch Staff

Capital One Financial Corp., the Richmond area's largest private employer, is expanding its credit card business in a big way.

The company said the deal to buy the U.S. credit card arm of Britain's HSBC Holdings PLC will add significant growth opportunities to its domestic credit card business.

Capital One did not say specifically how the acquisition might affect its operations in the Richmond region, where it employs more than 7,800 people. The bulk of Capital One's local functions deal with its credit card unit.

"Over the upcoming weeks and months, we will be working with our partners at HSBC to fully establish our detailed integration plans," Capital One spokeswoman Julie Rakes said. "We will leverage our deep experience and well-defined integration processes to implement the HSBC integration in a sure-footed and thoughtful way to minimize any potential disruption to customers, operations and associates."

The deal allows Capital One to expand its domestic credit card business.

"Adding the HSBC card business to our own will enhance our credit card franchise and accelerate our achievement of a leadership position in retail card partnerships," Capital One Chairman and CEO Richard Fairbank said in a statement.

Capital One will pay a $2.6 billion premium for HSBC's U.S. credit card unit. The acquisition includes the HSBC unit's gross assets that were valued at $30.4 billion as of June 30, including about $29.6 billion in gross customer loan balances.

The acquisition should provide a significant boost to its 2013 operating earnings, the company said.

The HSBC deal comes two months after the McLean-based company said that it will buy ING Direct, the U.S. online banking unit of Dutch financial giant ING Groep, for $9 billion in a cash and stock deal. That deal makes Capital One the fifth-largest U.S. bank by deposits, up from No. 8, and the biggest U.S. online bank.

The two deals "are distinct long-term positives for (Capital One)," David West, director of research for Davenport & Co. in Richmond, wrote in a research note.

"They have a pretty sizable commitment here in the Richmond area, and I would not be surprised if it means net job inflow over time," West said.

The latest deal includes HSBC's private label, or store-branded cards, and its MasterCard, Visa and other domestic credit card operations. The deal does not includes HSBC Bank USA's $1.1 billion credit card business.

The private-label portfolio represents about 14 percent of the market, making it third-largest in the U.S. behind General Electric Co. and Citigroup Inc., said David Robertson, publisher of the Nilson Report, a payment-industry trade publication.

"Capital One's specialty has always been trying to find the profitable revolving-credit customer," Robertson said. "The private-label credit card portfolio will give them an increased ability to do that."

HSBC and Capital One said that they expect no immediate changes to the credit card programs and operations. HSBC customers will see no near-term service changes and should be able to use their credit cards like normal.

HSBC said that all of the unit's employees will be offered jobs with Capital One.

Capital One expects to fund HSBC credit card loans mostly with cash and proceeds from repositioning its balance sheet for its buyout of ING Direct. The deal should raise about $1.25 billion in capital.

Capital One has the option to issue $750 million of the $1.25 billion in capital to HSBC at $39.23 per share, which is the average of Capital One's closing prices the past two days.

The bank said the acquisition will result in about $350 million in cost savings. It will also incur approximately $420 million in restructuring costs tied to the deal.

The acquisition is expected to close in the second quarter of 2012.

Staff writer John Reid Blackwell, The Associated Press and Bloomberg News contributed to this report.

Copyright Richmond Times-Dispatch. Used by permission.

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