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Announcement:

Moody's confirms Capital One's ratings, outlook is stable

17 Feb 2012

New York, February 17, 2012 -- Moody's Investors Service confirmed the long-term ratings of Capital One Financial Corporation ("COF," Baa1 senior debt rating) and its lead banks, Capital One, N.A. ("CONA") and Capital One Bank (USA), N.A. ("COBNA") (A3 deposit rating, C standalone bank financial strength rating which maps to A3 on the long-term scale) and assigned a stable outlook to all ratings. The rating action follows COF's completion of its acquisition of ING Direct on February 17, 2012 and concludes the review initiated on June 16, 2011 following COF's announcement that it had entered into an agreement to acquire ING Direct.

RATINGS RATIONALE

The rating action reflects COF's fundamental strengths. These include solid franchise positioning, particularly within the company's domestic credit card and banking segments, continued strong core profitability, and a solid liquidity and funding position. The ratings also incorporate the fact that COF's business profile is heavily leveraged to the US consumer economy, with attendant vulnerabilities to economic shocks and political/regulatory risks.

The approximate $9 billion ING Direct acquisition significantly advances COF's strategy to expand its direct banking platform - to complement the company's traditional retail branch platform - through the addition of ING Direct's deposit base of approximately $80 billion. With the ING Direct acquisition, COF's direct-to-consumer deposits will increase substantially. These deposits have shown some resilience, though they remain more prone to outflows than traditional branch-based accounts in our opinion.

Some of the additional deposits will fund the assets set to be acquired in COF's next acquisition, the pending purchase of HSBC's approximate $30 billion US credit card operations for a 9% premium (which is subject to regulatory approval and is currently expected to close in Q2 2012). That acquisition will further bolster the market position of COF's US general purpose credit card franchise; it will also more than quadruple the size of COF's private label retail cards portfolio, historically a riskier business than general purpose cards and a business in which COF has a relatively limited history.

However, even with the HSBC card transaction, COF's deposits will exceed its loans. Although it is not yet clear how COF intends to deploy the balance of its enlarged deposit base, Moody's does not anticipate any significant changes in the bank's strategic direction.

While the acquisitions of ING Direct and HSBC card should augment COF's franchise positioning in banking and credit cards, they will try COF's integration capabilities, particularly given their size and the fact that they are essentially coming one right after the other. In the case of ING Direct, COF will need to be mindful of the strong affinity of ING Direct's accountholders in order to minimize the degree of account attrition. Moreover, by taking on the HSBC card acquisition at roughly the same time as ING Direct, COF would be exposing itself to a greater risk of integration-related difficulties, particularly given the size and complex nature of the HSBC acquisition. Nevertheless, Moody's believes such challenges are mitigated by the prudent structure of the acquisitions, including equity issuance to fund a portion of the consideration and appropriate credit marks, and are captured by COF's current ratings. Moreover, if executed properly, the acquisitions ultimately should benefit COF's credit profile by providing additional sources of growth for the company in an intensely asset and revenue-challenged environment for the US banking industry.

The methodologies used in this rating were "Bank Financial Strength Ratings: Global Methodology" published in February 2007, "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology" published in March 2007, and "Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated Debt," published in November 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Based in McLean, Virginia, COF is a bank holding company. The company reported total assets of $206 billion as of December 31, 2011.

REGULATORY DISCLOSURES

Although this credit rating has been issued in a non-EU country which has not been recognized as endorsable at this date, this credit rating is deemed "EU qualified by extension" and may still be used by financial institutions for regulatory purposes until 30 April 2012. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Curt Beaudouin
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Robert Young
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's confirms Capital One's ratings, outlook is stable
No Related Data.
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