Irish Eyes Frown on Capital One
It's one of the oldest tricks in the book: A company announces a big acquisition just before it hits a rough patch so that it can divert attention from its troubles and cloud its financial results.
Capital One, arguably the nation's most aggressive credit card lender,
Clearly, another quarter of worse-than-expected numbers would have sent Capital One's stock diving. Unless, of course, the company could point to something that radically changes its outlook. And the acquisition of Hibernia is supposed to do just that.Capital One was up $2.68, or 3.6%, to $78.68 Tuesday. According to the proposed terms of the deal, Capital One is spending over $5 billion on Hibernia, which works out at 18 times earnings -- a pricey multiple for a bank, especially one with a history of blowing up like Hibernia. To be sure, Capital One's bashers have a number of reasons to be slightly less negative after the deal. Most important, buying Hibernia will effectively drive down Capital One's cost of borrowing, which is currently above levels of its main competitors. Retail banks like Hibernia are able to amass deposits, which are then used as low-cost funding for loans. Till now, Capital One has had to rely on a mixture of higher-cost deposits and selling loan-backed bonds as its main funding sources.
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