Capital One Approval Signals Trouble Ahead for Large Acquirers

By Donna Borak

Although the Federal Reserve Board ultimately signed off on Capital One Financial Corp.’s deal to buy ING Direct USA, the grueling 9-month long process to get there is a warning to other large would-be acquirers. Banks are likely to face tougher standards and a lengthier approval process than ever before, according to industry experts. Capital One closed its deal Friday with ING for $6.3 billion in cash and 54 million shares of the McLean, Va.-based company’s stock after an unusually long approval process. Although critics charged the deal would make Capital One a systemic threat, the Fed-and many observers-disagreed. Still, the fact that the central bank took 9 months of deliberation on the issue, and held three public hearings, indicates the Fed is viewing large mergers with a more skeptical eye than in the past. To many, the central bank’s 40-page order sent a strong signal that the Fed will only get tougher and more rigorous as it reviews future applications. “The most important message, which comes at least from the process with which this was reviewed as from the actual approval, is that once routine transactions among even mid-sized regional bank holding companies are no longer at all routine,” said Karen Shaw Petrou, a managing partner at Federal Financial Analytics. “They’ve become political and subject to a much more stringent standard under this new financial stability criteria.”