Capital One Financial Corp. said Thursday it will acquire Chevy Chase Bank for $520 million in cash and stock, as it continues to bolster its deposit base to help fund operations amid the ongoing credit crisis.
Fresh off receiving $3.56 billion in funds as part of the government’s bank investment program and raising more than $700 million through a stock offering, McLean-based Capital One will use $445 million in cash and 2.56 million shares of Capital One valued at $75 million, or about $29.30 per share, to acquire privately held Chevy Chase Bank.
Shares of Capital One fell 60 cents to close at $30.99 on the New York Stock Exchange.
Chevy Chase Bank, which has about $11 billion in deposits, operates branches in Maryland, Virginia and the District. Capital One had about $98.9 billion deposits as of Sept. 30.
Bethesda-based Chevy Chase Bank is the latest in a string of regional banks Capital One has purchased in recent years as it expands to become a full-service bank after primarily operating as a credit card lender.
In November 2005, Capital One bought New Orleans-based Hibernia Corp., which had branches in Texas and Louisiana. In December 2006, the company completed its acquisition of North Fork Bank, which operates banks in New York and New Jersey.
That appetite for deposits over the past three years has helped Capital One sidestep the worst of the credit crisis that has snagged other financial services firms without such bases.
Access to funding typically used by credit card lenders such as Capital One has all but disappeared during the current market turmoil. By purchasing Chevy Chase, Capital One can increase its funding through traditional savings and checking accounts.
“Deposits are really the only source of stable funding in the market, aside from government programs,” said Scott Valentin, an analyst with Friedman, Billings, Ramsey & Co. The deal moves it closer to a funding model of traditional banks, Mr. Valentin said.
Capital One has also embraced its status as a bank to take advantage of the government’s lending programs, such as participating in the Treasury Department’s $700 billion financial rescue plan. Capital One received about $3.56 billion from the Treasury in return for preferred stock and warrants to purchase common stock.
“The bailout money played a role in this transaction as well,” said Bob Meara, a senior analyst with financial consulting firm Celent. “Taking a small percentage of [the government investment] to gain these assets strikes me as a good deal.”
Capital One said the Chevy Chase deal will boost operating earnings in 2009.
Capital One added that it expects to incur about $225 million of charges tied to merger and integration costs. It expects the deal to eventually reduce expenses by $125 million.
The deal is expected to be closed during the first quarter.
