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TheStreet Open House

Capital One's ING Play a 'Head Scratcher'

NEW YORK ( TheStreet) -- A potential acquisition of ING Direct (ING) by Capital One (COF) is a "head scratcher," that would make less sense than an acquisition by General Electric (GE), according to industry analysts.

Bloomberg reported that both companies had submitted bids for ING Direct that reach $9 billion. GE's bid was all cash, while Capital One's bid apparently included stock, according to the report.

"They have the liquidity and a stable balance sheet," said Morningstar analyst Michael Kon. "It is a bit of a surprise, in that it's a online bank and that is something that Capital One didn't really look to strategically grow. And ING Direct has a large mortgage business, which is an area that Capital One wants to exit."

Capital One closed its residential mortgage business, GreenPoint Mortgage in 2007, which it acquired with its 2006 acquisition of North Fork.

Kon rationalized that Capital One may see potential to build up online, or could be seeking build up deposits. .

"I am a little surprised that Capital One would be interested from a strategic standpoint, especially after investor reaction to the North Fork and Chevy Chase deals," said Sandler O'Neill analyst Michael Taino.

During those two acquisitions, which took place between 2006 and 2008, Capital One investors reacted negatively to both deals, claiming that management overpaid for the banks, said Taino.

"The stock is down, which may be an indicator of how investors may feel about a deal. Capital One got very good assets in the past, and in my opinion the criticism was unjustified," said Kon.

Capital One's stock was trading down three cents on the rumors that it may acquire ING Direct at $50.70.

Sterne Agee analyst Henry Coffey says the acquisition may make sense for Capital One, but he still does not recommend the stock.

"When you look at the success that Discover (DFS) or Ally have had with indirect banks and how successful other platforms have been, it may work," said Sterne Agee analyst Henry Coffey. "You would hope they would get the acquisition right this time if they did it."

Calls to Capital One for comment were not immediately returned.

--Written by Maria Woehr in New York.



To contact the writer of this article, click here: Maria Woehr. To follow the writer on Twitter, go to http://twitter.com/newsgirlmw.

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