As per the regulatory filing on Tuesday,
Capital One Financial Corporation
) has wrapped up the
HSBC Holdings Plc
) U.S. credit card business deal, which was announced in August
2011. This divestiture was a part of HSBC's long-term strategy to
reduce costs up to $3.5 billion by 2013 and cut back retail
As per the terms of the agreement, Capital One paid $31.3
billion in cash, including $2.5 billion premium for credit card
receivables acquired, to HSBC. Following the acquisition, the
company assumed $28.2 billion of credit card receivables and $0.6
billion in other net assets.
The deal will likely bring high teens GAAP as well as operating
earnings per share for Capital One in 2013. Also, an IRR of greater
than 20%, return on invested capital of more than 25% and a 400
basis point improvement in return on tangible equity are expected
to be the outcome of the transaction in 2013.
HSBC's U.S. credit card business is a strategic fit for Capital
One as it has a proven track record and generates more than half of
its revenue from credit cards. The deal will definitely improve the
credit card franchise of the company. Consequently, the company is
expected to significantly gain from this transaction with low
business execution risk.
Moreover, the closing of the transaction will barely have any
impact on the customers. As an added advantage, HSBC's credit card
customers will now be able to have access to Capital One's ATM
network, across the country.
For Capital One, this would be the second-largest acquisition
completed this year. In February, it closed the acquisition of ING
Direct USA, the online banking unit of Amsterdam-based
ING Groep NV
), in a $9.0 billion stock-cum-cash deal.
Capital One has been growing organically as well as through
acquisitions. Since 2005, it has integrated three banks - Hibernia
Corporation in 2005, North Fork Bancorporation in 2006, and Chevy
Chase Bank in 2009. Moreover, given its sound capital position and
stable balance sheet, the company will be able to further de-risk
its balance sheet, and provide its customers with better access to
Currently, Capital One retains a Zacks #3 Rank, which translates
into a short-term Hold rating. Also, considering the fundamentals,
we maintain a long-term Neutral recommendation on the stock.
CAPITAL ONE FIN (COF): Free Stock Analysis
HSBC HOLDINGS (HBC): Free Stock Analysis Report
ING GROEP-ADR (ING): Free Stock Analysis Report
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