(Article updated with Capital One's winning bid for ING Direct)



) --

Capital One Financial

(COF) - Get Report

has won a bid for

ING Groep's

online banking unit, the

Wall Street Journal

reported Thursday, citing people familiar with the matter.

Capital One will pay $6.2 billion dollars in cash and $2.8 billion in stock for

ING Direct USA

, according to the report, giving ING a 10% stake.

A Capital One spokesperson could not be reached for comment.

Early reports of the deal

had some analysts scratching their heads, as it seemed like an unlikely fit.

"It is a bit of a surprise, in that it's an online bank and that is something that Capital One didn't really look to strategically grow," Morningstar analyst Michael Kon told


last week. "And ING Direct has a large mortgage business, which is an area that Capital One wants to exit."

The bank is unlikely to hold on to the mortgage assets of ING, but its willingness to take on the assets helped it win the bid over

General Electric

(GE) - Get Report

, according to the report.

Wall Street seemed to favor the deal as well, with the stock up 2.4% to $49.03 as of Thursday afternoon on the report.

But Capital One's seemingly aggressive acquisition strategy has some analysts wary. The bank is eyeing the U.S. credit card portfolio of HSBC, according to a

Wall Street Journal Report

earlier Thursday, which would be yet another sizeable deal.

If the report is true, the rationale for such a buy is a no brainer. Capital One's credit card portfolio has been under pressure and another card portfolio will help offset the decline and might offer it some much desired revenue growth.

"They are on the path to trying to buy as much as they can," according to Jason Arnold, analyst at RBC Capital, noting the bank's recent purchase of retailer


(KSS) - Get Report

credit card portfolio, a notably smaller deal. "Their intention is to help slow the pace of a decline in their credit card portfolios. The name of the game in financials is to show loan growth and that is not an easy target."

A bid for HSBC probably makes more strategic sense than the one for ING. But if Capital One is indeed looking to expand its credit card business then the bid for ING's online business might not be such a bad idea, analysts say.

"The rationale for the ING deal is hard to understand. People just don't get the rationale behind Capital One buying an online bank when they have focused so much on building a retail network," Michael Taiano, analyst at Sandler O'Neil, told


earlier."If you were to pair the two deals together, it makes more sense. That way

Capital One can reallocate low-cost deposits to high yielding assets and that could be accretive."

But timing might be everything for such a strategy to work according to Taiano. "As a standalone, HSBC

credit card portfolio makes more sense

than ING," he said. "There is the risk that Capital One could win ING, but not win HSBC."

The size of the deals is also a source of concern. According to Taiano, if Capital One wins both deals, its assets could potentially increase by 50%, assuming it sells off some of ING's assets such as its mortgage business. ING has $82 billion in deposits and 7 million customers. That could mean it would have to raise more capital. The bank's capital ratios are "just about adequate", the analyst says.

According to the latest report, Capital One is expected to raise $2 billion before the deal closes, expected around the end of end of the year.

Arnold of RBC Capital also feels Capital One is being too ambitious in its acquisition strategy and is particularly skeptical of the ING deal. "It is sizeable and their capital ratios are not robust. They will have to do an equity raise. The deposits are less sticky than what they have on the books. If ING's customers are less inclined to stick with Capital One, they could lose deposits quickly. It would take a lot of time to digest a deal of that size," he said.

The analyst believes the HSBC deal might help offset the decline in credit card portfolios, but said would prefer to see deals more along the lines of its Kohl's credit card deal. "I would rather see them work through their current credit issues than take on such size."

--Written by Shanthi Bharatwaj in New York

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Shanthi Bharatwaj


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