Capital One to Buy Chevy Chase Bank for $520 Million

Capital One Financial Corp. (COF: 37.70 -1.67%) announced Thursday it has agreed to acquire Maryland-based Chevy Chase Bank for $520 million. The purchase will add Chevy Chase’s $11 billion in deposits to Capital One’s balance sheets.

“This transaction will enhance our strong deposit base, providing us with greater scope and scale in key mid-Atlantic banking markets,” said Capital One chairman and CEO Richard Fairbank in a press statement regarding the agreement. “At a time when core funding is key, we see our deposit strength as an important element of our continued success.”

The combined company will have the eight largest portfolio in the U.S. with combined deposits of more than $110 billion, a managed loan portfolio of more than $159 billion and 983 branches, according to Capital One’s media statement. The acquisition is expected to close in the first quarter of 2009, Chevy Chase said in a media statement.

Both banks have seen their share of mortgage woes, especially in Alt-A and ARM operations. In early 2007, the Wall Street Journal reported that a federal district court ruling found the Maryland bank was in violation of the Federal Truth in Lending Act and required the bank to rescind some option ARM loans. A year later, rumors began circling that Chevy Chase Bank would exit the wholesale lending channel altogether.

In mid-2007, Capital One’s GreenPoint lending unit shed jobs amid decreasing secondary market demand for Alt-A investments. The bank continued bleeding employees months later as it announced it would close the wholesale mortgage outfit altogether. Capital One’s quarterly statements shifted to a loss in late 2007 and continued to drag in the subsequent quarter.

As of the end of the third quarter 2008, Capital One maintained liquidity of $32 billion. “After the impact of this transaction, Capital One will continue to maintain strong capital levels,” the bank’s press release read, in part, leaving up to interpretation what the “impact” of the acquisition will be.

Write to Diana Golobay at diana.golobay@housingwire.com.

Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.