- The Washington Times - Monday, March 7, 2005

Shares of Capital One Financial Corp. fell 3 percent yesterday after the McLean credit card issuer announced Sunday it would buy New Orleans bank Hibernia Corp. for $5.3 billion.

Capital One, which won regulatory approval last year to enter the retail banking business, will gain 207 bank branches in Louisiana and 109 branches in Texas from the deal.

The transaction, which is subject to regulatory and shareholder approvals, is expected to close sometime between July and September.

The company’s stock dropped yesterday to $76 on the New York Stock Exchange, down $2.08 from Friday’s close of $78.08.

Michael Cohen, an analyst with Bala Cynwyd, Pa., brokerage firm Susquehanna International Group LLC, said he was not surprised Capital One’s stock declined, saying a drop is typical with most acquisitions.

One reason could be that the Hibernia acquisition will not start affecting Capital One’s balance sheet until 2007, Mr. Cohen said.

“While some investors are likely to react negatively to the fact the deal is not accretive until 2007, we believe that represents a realistic time horizon for a company that is investing in a new business,” said Mr. Cohen, who continued to advise investors to hold the stock.

Mr. Cohen does not own any shares of Capital One and Susquehanna has no business with the company.

While the acquisition was larger than most analysts were expecting, analyst Laura Kaster said the deal was important in diversifying Capital One’s services and improving long-term growth.

“They paid a full price, but they didn’t overpay for the transaction,” said Ms. Kaster, with New York investment bank Sandler, O’Neill & Partners LP.

Ms. Kaster, who rated the stock as a “buy,” said she also was encouraged that Capital One’s earnings are stabilizing on a year-to-year basis.

“There is still a lot of volatility quarter to quarter,” she said, adding she does not own any company stock. Sandler O’Neill is seeking business with Capital One.

Capital One reported a 27 percent drop for income for the fourth quarter ended Dec. 31 to $195.1 million (77 cents per share) from $265.7 million ($1.11) in the previous year. However, full-year profits shot up 36 percent to $1.5 billion ($6.21) from $1.1 billion ($4.85) in 2003.

In addition to increasing Capital One’s products and services, Hibernia Corp.’s presence in Texas gives Capital One access to more Hispanic customers. Howard Mason, analyst with New York investment bank Sanford C. Bernstein & Co. LLC, said Hispanics make up one-third of the Texas population but have fewer credit cards than the general public.

Less than 40 percent of Hispanics carry a credit card compared to 80 percent of the general population, said Mr. Mason, who rated Capital One as outperforming the market.

Mr. Mason does not own any Capital One shares but Sanford C. Bernstein has a banking relationship with the company.

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