Last week Capital One Financial Corp. announced plans to acquire New Orleans-based retail bank Hibernia Corp. for $5.3 billion, and though the move will undoubtedly give Capital One more liquidity and funding access, there is doubt as to what the future holds for the company's credit card ABS issuance volume.
Merrill Lynch researcher Theresa O'Neill, noted that the acquisition is not likely to seriously affect Capital One's securitization program, but, if anything may decrease it. "Once the acquisition is complete, we expect Capital One to utilize the funding advantages offered by Hibernia, possibly reducing the size of Capital One's securitization programs. Nevertheless, management indicated its intent to securitize some of Hibernia's assets, its $15.7 billion loan portfolio consists of 21% small business loans, 25% commercial loans and 54% consumer loans," writes O'Neill.
Moody's Investors Service, on the other hand, feels the acquisition will definitely put a dent in Capital One's issuance. "The acquisition of Hibernia would add to Capital One's growing earnings diversification and reduce its reliance on earnings from credit cards," said Moody's. "In addition, on a consolidated basis the acquisition would reduce Capital One's reliance on securitization for funding," continued Moody's.
As the fifth largest credit card issuer in the U.S., Capital One has an $18.8 billion market capitalization and routinely securitizes its credit card, prime and nonprime auto receivables. Hibernia is the leading retail bank in Louisiana with a $4 billion market capitalization and a growing presence in Eastern Texas as well. According to data from Capital One, Hibernia has $4.2 billion in outstanding mortgage loans and $2.4 billion in auto loans.
All three major rating agencies have placed Capital One's debt rating on review for a possible upgrade as a result of the acquisition, while placing certain Hibernia ratings on watch for a possible downgrade. Capital One is currently rated BBB' by Fitch Ratings Baa3' by Moody's, and BBB-' by Standard & Poor's. Hibernia is currently rated A-' by Fitch Baa2' by Moody's, and BBB+' by S&P.
Calls to officials at Capital One were referred to the media relations department, or not returned. -
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