Capital One - Unusual Growth

Unusual Growth

Unlike other diversified financial services firms, Capital One began as consumer lending "monoline". Remaining a monoline is precarious because of the often-cyclical nature of consumer lending; it can be very profitable industry in good times and markedly unprofitable in bad, such that a monoline company will go out of business or be acquired fairly cheaply during hard times. Most consumer-lending monolines in the past twenty years have either gone out of business (e.g., The Money Store, NextCard, Royal Acceptance) or have been acquired (e.g., MBNA, Beneficial, First USA); Capital One is notable for having experienced neither.

Prior to this the company experienced tremendous growth as a monoline which it credited to its Information Based Strategy, a strategy it pioneered to use customer data to help tailor its products to customers, particularly subprime consumers. The company had one of the largest databases of consumer data at one time: over three terabytes of data by 1998. It attempted to leverage this strategy outside of the finance industry, most notably in the cell phone market as AmericaOne which it eventually sold to Sprint.

While many monolines were acquired by larger, diverse banks, Capital One adopted the opposite strategy by expanding into retail banking in 2005. This was accomplished through the acquisition of Hibernia, North Fork and Chevy Chase Bank, three large regional banks.

In June 2011, ING announced the sale of its American ING Direct division to Capital One for cash and shares worth USD 9 billion. On August 26, 2011, the Federal Reserve Board of Governors announced it would hold public hearings on the Capital One acquisition of ING Direct, as well as extend the public comment period previously slated to end August 22 to October 12, 2011. The move came amidst rising scrutiny of the deal on systemic risk, or "Too-Big-to-Fail," performance under the Community Reinvestment Act, and pending legal challenges. A coalition of national civil rights and consumer groups, led by the National Community Reinvestment Coalition, were joined by Rep. Barney Frank (D-MA) to challenge immediate approval of the deal. The groups have argued that the acquisition is a test of the Dodd-Frank Wall Street Reform and Consumer Protection Act, under which systemically risky firms must demonstrate a public benefit that outweighs new risk before they are allowed to grow.

Other skeptics of the deal include Kansas City Federal Reserve Bank head Thomas M. Hoenig, and columnist Steven Pearlstein. The acquisition was approved by regulators on February 14, 2012.

A June 2011 bid by Capital One to acquire the U.S. credit card operations of HSBC is currently in review.. The deal would be a US$30 billion credit card portfolio to Capital One, and make the company the fourth-largest credit card issuer in the country.