Capital One, Citigroup Among Suitors for Chevy Chase Bank

Capital One and Citigroup have each held discussions to buy Chevy Chase Bank, one of the largest and best-known banks in the Washington region, according to sources familiar with the matter.

For both Capital One and Citigroup, privately owned Chevy Chase represents a potential source of deposits at a time when financial institutions are hungry for cash. McLean-based Capital One has bought two regional banks in recent years, helping fund its massive credit card business.

"It's about deposits and picking up branches," said Mike Tarsala, a managing analyst for Thomson Reuters. He added that Washington is an attractive area for acquisitions because it is affluent and has not suffered major declines in housing.

Spokesmen for Bethesda-based Chevy Chase Bank, owned by the B.F. Saul family, and Capital One said the companies would not comment. A Chevy Chase spokesman last week said the company did not comment on "rumors" about the interest of other banks seeking to acquire Chevy Chase. Sources on the talks spoke on condition of anonymity because discussions were private.

Major national banks these days are hungry for regional banks with a strong deposit base because those deposits are a more secure source of funds than loans from hedge funds or other banks. Many financial institutions have been hit hard by the credit crisis and are struggling to maintain their levels of cash.

"Everyone is looking for stable funding these days," said Scott Valentin, a managing director and bank analyst at FBR Capital Markets. "Because the capital markets are closed, deposits are the only game in town."

Valentin said he believes TD Ameritrade, SunTrust Banks, J.P. Morgan Chase and BB&T are interested in purchasing Chevy Chase Bank.

Chevy Chase has $11.4 billion of deposits and 292 branches, according to the Federal Deposit Insurance Corp. Web site. It is the area's fifth-largest bank and the largest headquartered in the region with branches here, with $15 billion in assets.

Capital One has been trying to reduce its reliance on credit cards, where growth is limited and the risk of loss is greater. Expanding its deposit base is part of a strategy to transform itself into what longtime chief executive Richard D. Fairbank recently referred to as "one of the nation's great banks."

Capital One had $98.9 billion in deposits as of Sept. 30 and was approved for a $3.55 billion capital injection from the Treasury. It has 739 branches, primarily in New York, New Jersey, Texas and Louisiana, from its purchases in recent years of Hibernia National Bank and North Fork.

The bank and credit card lender in September raised $750 million from a stock offering, capital it may use for acquisitions, Valentin said.

"They wanted to use the money for offensive reasons," he said. "They know this area because they are based here. This would extend their footprint down from New Jersey."