Capital One To Buy Local Banking Icon Chevy Chase

The savings-and-loans, including Chevy Chase, concentrated on a particular kind of risky mortgage loan called an option adjustable-rate mortgage, which allowed a borrower to defer part of the required monthly payment for up to several years. As those payments come due, many borrowers are defaulting, leaving Chevy Chase without the money it expected to collect. Its non-performing assets more than tripled to $490 million between September 2007 and June 2008, the most recent results the bank reported.

Chevy Chase reported a modest profit of $8 million for the second quarter of this year, but only because it projected that it would be able to collect about $18 million in deferred mortgage payments.

The bank tried to survive by shrinking. It closed mortgage lending offices around the country, shut 54 bank branches in Washington area Giant Food stores, and reduced its portfolio of mortgages and other assets.

But Chevy Chase still holds about $4 billion in option ARM loans.

Chevy Chase branches would be rechristened under the Capital One logo. In New York, where Capital One bought North Fork Bank, the company's branches reflect the personality of the neighborhood they are in. For instance, a branch in trendy Tribeca in lower Manhattan is a former art gallery, and the one in Union Square features pictures from the nearby farmers' market.

Chevy Chase customers would also get access to a variety of programs Capital One is introducing to local banking customers, such as a suite of credit cards and other financial products. Capital One has made a major advertising blitz in New York, decorating the transit system and flooding television stations with ads. Capital One has 50 million credit card customers and is best known for its mantra, "What's in your wallet?"

Saul is expected to remain with Capital One for a transition period, sources said. Chevy Chase would be part of a banking division of Capital One overseen by New York-based Lynn Pike, a former Bank of America and Wells Fargo executive who joined the firm to help run its new banking operation.

After spending more than $18 billion on banks in recent years, Capital One executives said earlier this year that they were not planning to move into new areas.

Sources said the courting of Chevy Chase began several weeks ago as it became clear that Chevy Chase was struggling. Citigroup also had expressed interest in Chevy Chase but was unable to pursue the deal after its stock price plummeted.

Capital One was spun out of Richmond-based Signet Bank in 1994 and quickly became one of the country's best known credit card companies. It pioneered a data-driven strategy for sending mass numbers of credit card offers with differing terms to potential customers.

Capital One's founding chief executive, Richard Fairbank, has said his goal is to build "one of the nation's great banks."

Chevy Chase and Capital One said they could not comment.