2nd UPDATE: Federal Reserve Board Approves Capital One Plan To Buy ING Bank

The U.S. Federal Reserve Board, after building suspense by delaying a decision twice in a week, unanimously approved Capital One Financial Corp.'s (COF) controversial bid to buy ING Groep NV's (ING, INGA.AE) U.S. online-banking business, finding that the deal will not threaten the health of the U.S. financial system.

The acquisition, the biggest bank deal to win approval from the Federal Reserve since the 2010 Dodd-Frank financial overhaul law was passed, will make McLean, Va.-based Capital One the nation's fifth-largest bank based on deposit size, according to the Fed.

The $9 billion acquisition of the Internet bank known for its orange lion logo and high-interest savings accounts bolsters Capital One's transformation from a credit-card lender into a large, full-service national bank.

The Fed disagreed with consumer groups' claims that the merger would result in a risky mega bank that would pose a potential risk to the whole financial system. The central bank found that Capital One does not engage in markets "to a degree that would pose significant risk to other institutions." It added that Capital One and ING Bank do not engage in complex activities and found that if the firm were to falter, it could be wound down without significantly disrupting financial markets. The comments--the first hint at how the regulator will scrutinize bank mergers under Dodd-Frank--prove that size isn't the only factor regulators will consider when considering a deal's potential impact on the economy.

"Although the proposed transaction would increase Capital One's overall size ... its larger size must be viewed in conjunction with the other metrics," the Fed said.

The company Tuesday said it expects to close on the deal "within the next few days as soon as the details associated with the transaction are finalized."

"I think the ING deal is going to prove to be one of the strategically most transformational things that's ever happened to this company," Capital One Chief Executive Richard Fairbank said at a financial conference last week.

The bank is also aiming to complete a separate $2.6 billion plan to buy the U.S. credit-card business of HSBC Holdings PLC (HBC, HSBA.LN, 0005.HK)in the second quarter.

Capital One's proposal was a closely watched test case of Dodd-Frank, which requires the Fed to consider for the first time whether deals would pose a risk to the banking system. The law seeks to put an end to "too-big-to-fail" companies, or firms that are so sprawling and interconnected that the government would have to bail them out if they falter.

The Fed's approval proves that certain big U.S. banks can still expand, but they might have to jump through more regulatory hoops. In a rare move, the Fed extended a deadline for the public to comment on the proposal and held three public meetings in Washington, Chicago and San Francisco on Capital One's plan. The last such public meetings occurred in 2008 as part of Bank of America Corp.'s (BAC) purchase of Countrywide Financial Corp.

Regulators "are taking a more measured approach," wrote FBR Capital Markets & Co. analyst Scott Valentin.

Groups such as the National Community Reinvestment Coalition and Rev. Jesse Jackson's Rainbow PUSH Coalition had accused Capital One of marketing expensive credit cards to vulnerable borrowers without investing enough in local communities.

"Should a systemically important bank be allowed to become bigger without a clear case that it will benefit society," said NCRC President John Taylor. "The answer is emphatically no."

Capital One is one of the nation's largest banks with $321.4 billion in assets, according to SNL's most recent data. But the firm is easily dwarfed by four, much larger, trillion-dollar banks: J.P. Morgan Chase & Co. (JPM), Bank of America, Citigroup Inc. (C), and Wells Fargo & Co. (WFC). All four have more than $1 trillion in assets.

-By Maya Jackson Randall, Dow Jones Newswires; 202-862-6687; maya.jackson-randall@dowjones.com

Capital One Financial (NYSE:COF)
Historical Stock Chart
From May 2024 to Jun 2024