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Capital One Buys HSBC Credit Card Biz

HSBC’s domestic credit card unit is packed with a $30 billion credit card portfolio which Capital One will shell out $2.59 billion to seal the deal.

Capital One Financial Corporation Capital is set to acquire HSBC's domestic credit card segment from for a premium of $2.59 billion. The deal comes with HSBC’s $30 billion credit card portfolio, for an 8.75% premium to par value of all receivables. However, HSBC will hold on to its $1.1 billion HSBC Bank USA credit card assets.

Capital One plans to pay a portion of the deal with cash and the remainder with the proceeds from the balance sheet repositioning related to the pending ING Direct acquisition. It has the option of issuing $750 million of the $1.25 billion to HSBC at $39.23 per share, which is the average of the closing prices of Capital One shares from August 8 and 9, 2011.

Capital Once will be gaining ongoing private label and co-branded partnerships, as well as infrastructure and capabilities that improve its partnership platform for future growth. The pairing will give Capital One's existing franchise and scale in the domestic card business. The company expects to realize cost synergies of around $350 million and incur restructuring costs of roughly $420 million

The deal is expected to close within the second quarter of 2012, and expects its Tier 1 common ratio to be in the mid-9% range at the end of the second quarter.  Capital One expects to achieve this capital position through a combination of internal capital generation, expected balance sheet repositioning related to the pending acquisitions of ING Direct and the HSBC domestic credit card business. It also plans to conduct a capital raise where it hopes to bring in roughly $1.25 billion.

Once the deal is complete Capital One expects its GAAP to hit the high teens and for its operating EPS to be accretive by 2013. The acquisition is expected to have an initial rate of return surpassing the 20% mark, and the return on invested capital to shoot above 25% within the same year.

Wachtell, Lipton, Rosen & Katz provided legal advice with Matthew Guest as the lead. Partner Richard Kim and associates David Adlerstein, Brandon Price, Raaj Narayan and Brett Shawn were all part of the corporate legal team.

Morrison & Foerster also stepped in to handle some legal matters.

Capital One hired Morgan Stanley, Centerview Partners, and The Kessler Group as its financial advisers.


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