This Day On The Street
Continue to site
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

Break Up Bank of America if Capital One Deal Falters (Update 3)

Updated with market lose informtion and a statement from Capital One.

NEW YORK ( TheStreet) -- What are they afraid of?

After seven months, three public hearings giving voice to pious "consumer advocates" who say that allowing Capital One to become the seventh largest U.S. banking company through its agreement to purchase ING Direct (USA) from ING Groep (ING) would be such a terrible thing, the Federal Reserve again failed to rule on the deal, even following Monday's special and delayed meeting on the subject.

How much further information could the Federal Reserve's Board of Governors possibly need?

It would appear that the Fed is afraid of its own shadow on this one. After all, if the Fed were to determine that Capital One -- which would have roughly $298 billion in total assets if the ING Direct (USA) deal were completed -- were to pose such a dire threat to the U.S. economy, being "too big to fail," then it would be forced to explain why it doesn't advocate the breakup of Bank of America (BAC - Get Report), JPMorgan Chase (JPM - Get Report), Citigroup (C - Get Report), Wells Fargo (WFC - Get Report), U.S Bancorp (USB), Bank of New York Mellon (BK), which would still be larger than Capital One.

Oh wait - I forgot. Investment banks Goldman Sachs (GS) and Morgan Stanley (MS - Get Report) are technically bank holding companies that gather deposits. They would also have larger balance sheets than the combined Capital One, so they must also be considered dire threats by the consumer advocates and possibly by the new, craven Fed.

The Fed might also need to revisit its decision to quickly approve Wells Fargo's acquisition of the troubled Wachovia at the end of 2008. What a terrible deal that was to the U.S. economy.

Such "systemic risk."

Not only did the Wells Fargo/Wachovia combination lower systemic risk by preventing a possible failure for Wachovia and more expense for the government, the combined company has been performing quite well.

Among the "big four" U.S. banks, Wells Fargo has had, by far, the strongest and most consistent earnings performance over the past year, with a return on average assets (ROA) ranging between 1.1% and 1.27% over the past five quarters, according to HighlineFI.

Let's not forget that the Fed's vacillation on the Capital One/ING Direct (USA) deal also affects Capital One's agreement to purchase HSBC's (HBC) U.S. credit card portfolio, for which it needs the liquidity boost from the ING Direct deal.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
BAC $14.19 -1.20%
C $44.81 -1.70%
JPM $62.01 -0.88%
MS $26.43 -1.70%
WFC $49.00 -1.20%


Chart of I:DJI
DOW 17,671.67 -79.24 -0.45%
S&P 500 2,052.89 -10.48 -0.51%
NASDAQ 4,738.5050 -24.7190 -0.52%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs