Katrina's winds rearrange Capital One bank deal

Virginia Business
October 2005

One victim of Hurricane Katrina was the original deal offered by Capital One Financial Corp. for Hibernia Corp., a New Orleans-based banking company.

The companies had been scheduled to close the stock and cash deal on Sept. 1, three days after Katrina slammed into the Gulf Coast. The merger was postponed until Sept. 7. On that day, however, McLean-based Capital One and Hibernia announced that the deal had been renegotiated, dropping the takeover offer by 9 percent to $5 billion.

Hibernia shareholders now will have to vote on the new proposal. They overwhelmingly supported Capital One's initial offer, with 94 percent of the vote. The companies hope to close the deal sometime in the fourth quarter.

After the merger was first postponed, Hibernia's stock price dropped as investors speculated over what Capital One planned to do. The stock declined 5.6 percent on Sept. 2 and fell another 4.9 percent on the day that the new deal was announced.

The companies say that the offer was renegotiated after assessing the damage to Hibernia's facilities (including its New Orleans headquarters and its 321 branches), its loan portfolio and its business prospects.

Hibernia says that 107 of its branches were in areas hit by Katrina. The bank had been able to reopen 47 in early September. Among the other 60 branches, 21 were badly damaged. Those branches account for about 5 percent of the company's deposits.
The companies, however, acknowledged that Hibernia could benefit from "significant federal and state aid and insurance proceeds expected to be received by the victims of the hurricane." Analysts say that banks typically have been among the businesses that profit from reconstruction after a hurricane.

Capital One, the largest private employer in the Richmond area, had been looking for a bank to buy since at least 2003. The company is best known as a credit card issuer, with 48 million accounts nationwide. The Hibernia deal was expected to vault the company into the ranks of the nation's top 10 consumer lenders and top 20 financial institutions in terms of deposits. Hibernia has $17.4 billion in deposits and $22 billion in assets. It had revenue last year of $1.2 billion.