Top US credit-card issuer Capital One Financial Corp agreed to buy regional bank Hibernia Corp for about $5.3 billion, adding a network of branches that will slash funding costs and boost profit down the road. Yet shares of McLean, Virginia-based Capital One are expected to fall in the near term, as acquisition costs lead to a reduction in per-share earnings until 2007. In premarket trading, Capital One shares fell 4.3 percent on the Inet electronic brokerage system.
The fifth-largest US issuer of MasterCard and Visa credit cards late on Sunday said it would pay $33 a share for New Orleans-based Hibernia, a commercial bank with about 300 branches in Louisiana and several fast-growing Texas markets.
With demand for card loans expected to slow after decades of explosive growth, lenders like Capital One are under pressure to find new business lines and reduce costs. Hibernia, analysts say, can help achieve both goals.
"Bottom line, Capital One will become a stronger company," Fulcrum Global Partners analyst Craig Maurer said. "The largest stumbling block in competing with the Citis and J.P. Morgans of the industry is cost of funding."
Last year, Hibernia's average cost of funds was about 1.3 percent, Maurer said, while Capital One pays as much as 4 percent for retail deposits sold directly by phone and over the Internet. That is significant because lenders profit from the spread between funding costs and rates charged to customers.
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