Citi Reports On COF's Recent Acquisition

Citi is maintaining its Buy rating, along with its $66 price target on Capital One Financial COF in light of the company's recent acquisition of HSBC. In its report, Citi states, “COF announced the acquisition of HSBC's $30B US card portfolio for a premium of $2.6B, or 8.75%. COF expects to fund the portfolio purchase with cash and recycling of ING Direct assets. They also plan to raise $1.25B of common equity, though they have the option to issue up to $750 mm directly to HSBC at $39.23. The deal is scheduled to close in Q2'12 and mgt anticipates “high teens” earnings accretion in 2013. At closing, the Tier 1 common equity ratio will be in the mid-9% range (vs. 9.2% at Q2'11). The deal is dilutive to TBV with an earn-back period of 4 years. COF remains the #4 largest U.S. card issuer but inches closer to the dominant legacy players (JPM and BAC), and they jump to the #3 private label issuer.” COF closed yesterday at $41.05.