Capital One’s Deal for ING Direct Still in Limbo

by Mercator Advisory Group 0

The Federal Reserve on Monday again declined to announce the fate of Capital One’s $9 billion takeover of ING Direct USA, the second delay in the last week.

“The board considered the application at its meeting this afternoon and expects to issue a decision soon,” a Fed spokeswoman said in a statement. “No further announcement is expected today.”

The Fed was expected on Monday to vote on the deal, which has drawn criticism from community banks and consumer advocates for its potential impact on the economy. The merger, critics note, would turn Capital One into the fifth- or sixth-largest bank by deposits. Currently, it does not rank in the top 10.

Last week, the Fed also suddenly postponed a closed-door meeting about the deal without explaining the cause of the delay. Capital One said that Fed officials attributed the last-minute change to scheduling problems.
But it is unclear whether the delays also indicate opposition within the Fed. Under the Dodd-Frank regulatory overhaul, the Fed must now weigh whether a bank merger would pose systemic risks to the economy. The central bank can block deals that are likely to cause more harm than good.

While the delays have kept Capital One in limbo, the bank said it remains optimistic that the Fed will ultimately bless the deal. Capital One needs support from a majority of the five governors to obtain approval. In June, Capital One agreed to pay $6.2 billion in cash for the American online banking business of the Dutch bank ING. Capital One would also issue $2.8 billion worth of new shares to ING, giving it a 9.9 percent stake.

The delay in the Fed’s decision hints at a more measured and conservative stance regarding bank mergers, particularly those involving large financial institutions. This will likely mean that FIs will have to provide deeper analyses and increased documentation to show that such deals would not be detrimental to the local and national economies.

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