In consumer lending, every product is evolving in the same direction as credit cards-toward large, national-scale consolidators replacing local, face-to-face lending. That evolution has happened in credit cards. It's well under way in auto finance, mortgages, and home equity. Its coming more slowly in installment lending. So consumer lending, a major part of the asset side of banking, is all flowing toward national consolidators like Capital One. -RICHARD D. FAIRBANK, CEO AND CHAIRMAN, CAPITAL ONE FINANCIAL CORPORATION'
United Kingdom, the Hfs Group, to strengthen its Global Financial services (GFS) subsidiary in the British market. As of April 2005, it possessed sufficient liquidity ($21 billion) and capital ($9.2 billion)4 to enable its famous brand to expand into new markets and seize the right opportunities for profitable growth. Although the company's acquisition of Hibernia in March 2005 provided it an opportunity to enter the fast-developing Texas markets of Houston and Dallas, it might face stiff competition from other large credit companies, such as Citigroup and J.P. Morgan.
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Capital One Financial Corporation is a diversified bank holding company, with a 2005 market value of $18.92 billion. It provides a gamut of financial services through its main subsidiaries-Capital One Bank, Capital One FS.B. (which offers consumer and commercial lending and consumer deposit products), and Capital One Auto Finance Inc (COAF). From a small local bankcard issuer in 1995, the company has transformed itself into one of the largest financial institutions in the United States by continually introducing a steady stream of products. It features one of the most recognized brands in the industry, which it leverages along with its strategies of direct marketing, risk analysis, and information technology to grow and diversify into other businesses. Ranked 206th in the Fortune 500 list in 2005,2 the company has been gradually transforming itself from a credit card company to an institution that provides banking and other financial services to consumers. By January 2005, it was the 31st largest deposit institution in the United States with $25.6 billion3 in interest-bearing deposits. Capital One has been on the path of diversification from the late 1990s and has made three acquisitions between 2004 and 2005: Onyx Acceptance Corporation, eSmartloan, and Hibernia National Bank. It has also acquired a home equity brokerage company in the
Capital One is the fifth largest credit card provider in the United States5 and one of the largest issuers of MasterCard and Visa credit cards. It was founded as a wholly owned subsidiary of Virginia-based Signet Bank when Richard D. Fairbank, CEO and chairman of Capital One, was invited by the bank to head its bankcard division. It began its operations in 1953, the same year MasterCard International was formed. Fairbank and the former vice chairman of Capital One, Nigel Morris, realized that traditional banks offered loans without focusing on the customers-like analyzing their risk characteristics. They decided that by using technology and data mining techniques in the decision- making process of providing credit, the bank could charge the appropriate interest rates more accurately and earn greater profits. In 1994, Capital One was spun off from Signet as a public credit card company and established itself in McLean, Virginia. It had an initial public offering of 7,125,000 shares of common stock in the United States and Canada, at a price of $16 per share,6 which was managed by J.P. Morgan Securities Ine., Goldman, Sachs & Co. and Barney Ine. It is a part of the S&P 500 index, and also trades on the New York Stock Exchange with the symbol COF
~ This case was written by Susmita Nandi, under the direction of Sumit Kumar Chaudhuri, ICFAI Business School Case Development Centre. It is intended to be :;: used as the basis for class discussion rather than to...
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