Capital One wards off Citigroup to acquire Chevy Chase Bank for $520 million

After losing Wachovia to Wells Fargo (See: Citi fumes as Wells Fargo steals Wachovia), Citigroup seems to have lost out on another potential acquisition . A fortnight after The Wall Street Journal reported Citigroup's interest in regional lender Chevy Chase Bank, Capital One Financial Corp. announced it's successful acquisition for $520 million in cash and stock to become the biggest retail bank based in the Washington DC region. (See: Citigroup in race for Chevy Chase Bank; management shake-up possible)

Capital One will pay $445 million in cash and 2.56 million of its own shares, the McLean, Virginia-based company said today in a statement. It will take a $1.75 billion markdown for potential losses in the loan portfolio at closely held Chevy Chase, which is based in Bethesda, Maryland.

Chevy Chase has more than $11 billion in deposits, which Capital One can use to help ride out the worst financial crisis since the Great Depression. In November, Capital One received about $3.55 billion under the US government's bank rescue plan being run by the Treasury Department.

The purchase will give Capital One the largest branch and ATM network in the Washington area, the bank said. Capital One's 739 current branches are mostly in New York, New Jersey, Louisiana and Texas, the company said. Chevy Chase shareholders will keep the bank's headquarters building in Bethesda and units including ASB Capital Management and Chevy Chase Trust.

''Chevy Chase provides an opportunity to acquire a well-run retail bank with local scale in one of the best local banking markets in the US. This transaction will enhance our strong deposit base, providing us with greater scope and scale in key mid-Atlantic banking markets,'' said Richard Fairbank, CEO of Capital One in a statement. ''At a time when core funding is key, we see our deposit strength as an important element of our continued success."

"Together we'll have more to offer customers, employees, and communities across the Washington DC, metropolitan area.'' said B Francis Saul, who founded Chevy Chase Bank in 1969, in a statement.

The transaction will generate a total of $225 million in expenses in 2009 and 2010, and is expected to close at the end of March, Capital One said. The combined bank will have more than $110 billion in deposits, managed loans of more than $159 billion and 983 branches.