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Capital One Awoke To Its Dream Deal
Long out of reach, Chevy Chase is being bought by Capital One for $520 million in cash and stock.
(By Bill O'leary -- The Washington Post)
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During negotiations and as dozens of Capital One employees and outside accountants pored through Chevy Chase's books, the two companies disputed the severity of the challenges facing Chevy Chase.
Although Capital One concluded that Chevy Chase had made fewer loans than other troubled banks in parts of the country hardest hit by the housing downturn, it also became clear that Chevy Chase had continued making loans even as the market was getting worse in 2007 and held more of these risky mortgages than many other banks, according to Capitol One executives. Capital One also calculated the effect of a sharp recession. That pushed down the value of Chevy Chase's portfolio and, consequently, the value of the company.
Chevy Chase disagreed.
To resolve the issue, the companies agreed that the Saul family would be compensated if it turns out Capital One had underestimated the value of Chevy Chase's portfolio. As much as an additional $300 million could flow to the Saul family. "The owners of Chevy Chase will share in that benefit," said Fairbank, 57.
Chevy Chase had a number of initial bidders. McCormick described Capital One's $520 million figure as an "attractive price." He said: "Capital One doesn't have a bank in this area. It was a nice opportunity for employees here to continue to be employed and operate things under the Capital One umbrella."
Sources familiar with the sale said federal banking regulators played no role in the deal. McCormick said the bank would have "absolutely" survived without being bought.
Capital One had been taking steps to ensure that it had the money to put down on a bank. It raised $700 million in private capital in October and received $3.56 billion from the Treasury as part of the government's emergency $700 billion initiative to stabilize the financial system.
Chevy Chase's deposits would add to Capital One's deposit base, which helps it fund its huge credit card business as the downturn in financial markets limits access to other sources of funding.
The deal has another significance for Fairbank. "To be able to start with something like this in our hometown is a transformational event for Capital One," he said. "Far bigger than the numbers associated with the deal."
On Wednesday night, as the deal neared, Fairbank worked from a conference room next to his office in McLean and Saul from his office in Bethesda. Saul held a board meeting to complete the deal. Fairbank signed the final paperwork, using special Waterman and Cross pens embossed with the Capital One logo. The two men talked on the phone.
"I expressed to Frank . . . that I know there are mixed emotions in selling his beloved institution and that I hoped that he shared our view that we would be the very best partners," Fairbank said.
Today, Fairbank will go to Chevy Chase's headquarters to meet with top employees and dine privately with Saul.
Staff writer Binyamin Appelbaum contributed to this report.
