Capital One Financial (COF) announced Thursday that it has a agreed to buy Maryland-based Chevy Chase Bank in a deal worth $520 million.
The purchase builds Capital One's local banking business, the company said, with an expanded presence in the mid-Atlantic region. The deal will also increase the firm's retail deposit base.
Under the deal, Capital One will buy Chevy Chase for $445 million in cash and 2.56 million Capital One shares. The stock portion of the deal is valued at $75 million, based on the closing price of December 2.
The transaction should add to Capital One's operating earnings in 2009, the company revealed, and add to its overall earnings in 2010. Capital One said it will take a net credit mark of $1.75 billion for potential losses in Chevy Chase's loan portfolio.
Capital One revealed that th transaction will likely close in the first quarter of 2009, pending regulatory approval.
The firm sees a reduction of $125 million of non-interest expenses because of the merger. The company plans to incur $225 million of merger and integration costs.
Chevy Chase has $11 billion in deposits and the deal will give Capital One the largest branch and ATM network in the Washington, DC region.
"Chevy Chase is a great strategic fit for Capital One and the combination of our two banks is economically compelling," Richard Fairbank, chairman and chief executive officer of Capital One, said in a statement.
He added, "This transaction will enhance our strong deposit base, providing us with greater scope and scale in key Mid-Atlantic banking markets."
There has been rampant speculation that the financial crisis would force a reorganization of the country's banking industry, sparking a wave of mergers and restructuring. With credit tight and the weak economy leading to higher loan losses, a large deposit base can help a bank whether the storm.
Capital One has deposits of $98.9 billion and $147.3 billion in managed loans outstanding. The purchase of Chevy Chase will take those statistics to more than $110 billion in deposits and a managed loan portfolio of more than $159 billion.
The combined company will also have 983 branches.
As part of the deal, the selling shareholders of Chevy Chase will retain certain assets currently owned by the bank, Capital One said, including ASB Capital Management, Chevy Chase Trust, and Chevy Chase's headquarters building in Bethesda, MD.
For comments and feedback: editorial@rttnews.com