Capital One to buy Chevy Chase Bank

From combined dispatches

McLean-based Capital One Financial Corp. is expected to announce Thursday that it will buy Chevy Chase Bank, the area’s largest retail bank.

According to the Wall Street Journal, Capital One has offered $520 million in cash and stock for the Bethesda-based bank. The transaction is expected to be made final during the first quarter of 2009.

No immediate comment was forthcoming Wednesday night from spokesmen for either Capital One or Chevy Chase.

The deal will make Capital One, long a leading credit card and financial services company, a dominant player in the Washington metropolitan area’s retail banking scene. The new Capital One would add about 250 branches in the area.

Capital One expects Chevy Chase’s risky mortgage loans to add up to about $1.75 billion in losses on an $11.8 billion loan portfolio, a person familiar with the situation told the Journal.

Other bidders for Chevy Chase had included JPMorgan Chase and Citigroup, the latter of whom had sought to buy Chevy Chase after its attempt to purchase Wachovia, also a major player in the Washington region, was turned away in the fall.

American banks are responding to the global meltdown in financial markets by trying to expand their branch networks and amass larger numbers of low-cost retail deposits.

Capital One has become a major player in recent years in the retail bank markets of New York, Texas and Louisiana. Chevy Chase has about $11.6 billion in deposits, a welcome relief for Capital One when banks are having a hard time raising money in the capital markets.

Acquiring Chevy Chase will make Capital One eligible for a larger share of the Treasury Department’s $350 billion bailout fund. In October, it received $3.55 billion from the government and the acquisition would let it qualify for Chevy Chase’s allotment of up to $450 million.

Stock in Capital One Financial Corp. closed Wednesday trading at $31.59 per share, up $2.30. Chevy Chase ended the day at $12.95, up 65 cents.