Capital One Joins the Big Boys

Ever wonder how the Capital One (NYS: COF) barbarians would look in a nice shade of orange? Well, you're about to find out. After a protracted process, the Federal Reserve has given Capital One the go-ahead to snap up ING's (NYS: ING) ING Direct USA unit.

The $9 billion acquisition was originally proposed last summer, but has had to run the government gauntlet to convince the Dodd-Frank-empowered regulators that the combination wouldn't create another "too big to fail" bank.

It's easy to understand the concern. After the combination, Capital One will become the fifth-largest depository institution in the U.S. with $210 billion in deposits. That will put the bank right up there with truly too-big-to-fail names like Bank of America (NYS: BAC) , JPMorgan (NYS: JPM) , and Citigroup (NYS: C) .

While there's part of me that wants to fight any bank sniffing the air anywhere near the too-big-to-fail strata, it's hard to argue that this is a transaction that will imperil the financial system. For one, neither Capital One nor the ING arm it's buying conduct the high-octane, risky activities that regulators are most concerned about. And while it will be a top-five bank by deposits, it's still not nearly on the same scale as B of A ($1 trillion in deposits), JPMorgan ($1.1 trillion in deposits), or Citi ($867 billion in deposits).

A win for investors... hopefully
As I outlined when the deal was announced, this deal seems like a pretty clear win for Capital One, which also makes it a nice win for Capital One investors. Capital One's bread and butter is credit cards, and ING Direct has put its nice deposit base into relatively low-yield assets. Capital One's prowess in higher-yield lending combined with ING Direct's low-cost deposits could mean good things for future profits.

It also may be worth giving a nod to economies of scale here. While Capital One's increase in size set off the "too big to fail" alarms and held up the deal, it also means that the company may be able to drive efficiencies thanks to the larger footprint and wider reach.

This doesn't come without any risks, though. As an ING Direct customer myself, I griped about the potential impact to customer experience -- and I wasn't alone. Perhaps these concerns are unfounded, the customer experience will stay the same, and customers (and their deposits) will stay put. But if Capital One runs roughshod over a model that has proven particularly successful, there is the possibility that the large, stable deposit base that makes this deal so attractive may not stick around.

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