|
|
Get Four
|  | MARCH 11, 2005
Capital One's Concrete Step CEO Richard Fairbank on why the financial company decided to invest in a bricks-and-mortar presence by buying Hibernia Capital One Financial is coming down to earth -- literally. The McLean (Va.) company, which sold $80 billion worth of credit-card, auto, and other consumer loans via mail, the Web, and TV, announced its first venture into bricks-and-mortar banking on Mar. 7 with its purchase of Hibernia Corp. (HIB ). The $5.3 billion deal brings Capital One (COF ) the dominant banking franchise in Hibernia's home state of Louisiana. But what Capital One especially prizes is Hibernia's toehold in Texas, where the bank has been aggressively building branches in Dallas, Houston, and other growth markets. Capital One CEO Richard Fairbank recently talked with BusinessWeek Washington Deputy Bureau Chief Mike McNamee about the banking industry's future and what part he hopes the Hibernia purchase will play in Capital One's future strategy. Here are edited excerpts from that conversation: On banking's evolution: In consumer lending, every product is evolving in the same direction as credit cards -- toward large, national-scale consolidators replacing local, face-to-face lending. That evolution has happened in credit cards. It's well under way in auto finance, mortgages, and home equity. It's coming more slowly in installment lending. So consumer lending, a major part of the asset side of banking, is all flowing toward national consolidators like Capital One. But gathering deposits is still a fiercely local business. There are some national players, including Capital One, selling CDs [certificates of deposit] by mail or on the Web. But the strong local banks have economics every bit as good as the national players'. The core banking products, like checking accounts, are still local. At Capital One, we have said we don't have to be a national-scale deposit player, like Bank of America. We want to complement our national-scale lending with a local-scale business in deposits. On the purchase of Hibernia: We wanted a bank with a strong management team. It had to either have strong local market share in deposits or be about to achieve it. And it had to have a platform to grow -- most banks are trapped in markets that aren't going anywhere. Most banks' growth model is just to buy another bank. Hibernia has dominant local scale in Louisiana. But they've built a strategy off that of expanding into some of the fastest-growing markets. Dallas and Houston are No. 2 and 3 in growth rate for large metro areas. [Hibernia is] in a sub-scale position there, but there's lots of Texas to exploit -- a big untapped market opportunity. And their management is very strong. On the deal's financial advantages: Hibernia's cost of funds is considerably lower than ours [1.38% vs. 4.24% in 2004]. We calculate this could cut half a percentage point off our funding costs [from 4.24% to 3.7%, based on 2004 figures]. More important, this diversifies both sides of our balance sheet. Our liabilities, our funding base is broader, with low-cost, very stable bank deposits. And in our asset mix, we're adding commercial lending to our consumer strength. On how Capital One's data-intensive "information-based strategy" fits the merger: I don't envision thousands of product tests at the [Hibernia] branches. But the information and analytics that we apply throughout the business can be brought to bear to select markets and [branch] sites where we want to be. On customer synergies in the deal: A Hibernia customer will have offerings that weren't available before. [Capital One offers] a blank-check auto loan and a broad array of home-equity products. We'll have our ability to deliver our national-scale products through local branches. The local branch, even when it's renamed Capital One, won't have the ability right away to service a Capital One credit-card customer. But we've been looking for a long time to get into debit cards. Hibernia will give us that ability. We also have [credit]-card customers throughout Louisiana and Texas, and we'll be encouraging them to make Hibernia their bank.  Edited by Beth Belton
BW MALL
SPONSORED LINKS
Get BusinessWeek directly on your desktop with our RSS feeds.
Buy a link now! Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
 Copyright 2005, by The McGraw-Hill Companies Inc. All rights reserved.Terms of Use | Privacy Notice |
Printer-Friendly Version
