On Sunday, Bloomberg reported that Capital One Financial Corp. (COF) is one of the few firms that are interested in buying ING Direct USA. ING Direct USA is the online banking unit of Amsterdam-based ING Groep NV (ING).

Apart from Capital One, ING has been in talks with several other companies and is looking to either sell ING Direct or merge it with a lending firm. Other companies that are in fray include SJB National Bank, General Electric Co. (GE) and CIT Group Inc. (CIT).

Earlier, ING had been in talks with Citigroup Inc. (C) to combine ING Direct with Citigroup’s credit-card business, but the talks somehow failed to materialize.

As a part of the European Union’s (EU) approval of restructuring plan, ING needs to sell off ING Direct by 2013 in order to receive €10 billion ($14 billion) as bail out money.

ING Direct’s main focus is on providing retail banking products, such as savings, payments services, mortgages, consumer lending and investment products, at a very low cost. These banking services complement Capital One’s financial products and services quite well.

Additionally, with $77.7 billion in deposits, ING Direct will be of a great benefit to Capital One. Hence, if the company wins ING Direct USA, this would surely enhance its revenue base in the medium term.

We anticipate continued synergies from Capital One’s geographic diversification. Moreover, the resilience of almost all its businesses will continue to support the financials. However, rising marketing expenses and the company’s commercial real estate exposure will remain as headwinds. Also, weak loan demand and the impact of the new financial reform law will restrict earnings in the near future.

Currently, Capital One retains a Zacks #2 Rank, which translates into a short term Buy rating. However, considering the fundamentals, we maintain a long term Neutral recommendation on the stock.

 
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