This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

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.

With perfect timing, Capital One (COF) is playing that trick with its planned purchase of southern bank Hibernia (HIB), a deal that was announced Monday.

Capital One, arguably the nation's most aggressive credit card lender, reported a weak fourth quarter , in which it blew over $500 million on marketing and got surprisingly puny account growth in return. It was a stark sign that Capital One is finding it very hard to compete against much bigger credit card lenders, such as Citigroup (C), Bank of America (BAC) and J.P. Morgan Chase (JPM).

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.

1 of 3

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs