The announced merger between credit card giant MBNA Corp. and Bank of America Corp. would leave McLean-based Capital One Financial Corp. as the only remaining company whose main business is marketing and issuing credit cards.
But as the push to consolidate continues in the credit card business, Wall Street investors and analysts are beginning to wonder how long Capital One can stand alone, given its attractive roster of credit card accounts and proven savvy in targeting new customers.
Richard D. Fairbank, Capital One's chairman and chief executive, has taken pains to insulate the company from unwanted suitors by diversifying into conventional banking, auto loans and other financial service businesses that, while profitable, would also make the company more expensive to a merger partner. But analysts said the company's highly regarded credit card operations and finely tuned marketing program could attract interest among a number of larger banks looking to beef up consumer-lending operations. These include the Netherlands' HSBC Group Holdings; Wachovia Corp., based in Charlotte; San Francisco-based Wells Fargo & Co.; New York's J.P. Morgan Chase & Co.; and Britain-based Royal Bank of Scotland Group PLC.
Capital One shares gyrated on the MBNA announcement Thursday, rising $6.12, or 8 percent, to $80.01 a share, as investors speculated that it would be the next takeover candidate. The shares yesterday fell back $1.10 in New York Stock Exchange trading to close at $78.91.
A spokeswoman for Capital One could not be reached yesterday.
While Wall Street analysts are split on the question, few believe that a deal for Capital One is imminent or feel that Fairbank is interested in selling.
"There are lots and lots of questions on Capital One," said Neil A. Abromavage, a Deutsche Bank analyst. "But my answer is, no -- I don't think the company sells itself for at least two years. "
Some think sale of the company is all but inevitable as growth in the credit card business slows and rivals owned by large banks use their financial power to offer lower rates, spend more on advertising and offer easier credit terms.
"Nothing happens until a seller makes a decision, some CEO finally says, 'Hey, I can't do this anymore,' " says Richard X. Bove, an analyst with San Francisco-based stock-research firm Punk Ziegel & Co. "But at some point the advantages the big guys have will put you in a position where you want to sell out."
Founded by Fairbank and Nigel Morris as a unit of Signet Bank, the company went public in 1995 and led an explosion of the credit card industry in the past decade, as consumers relaxed long-held reservations about personal debt. Capital One, MBNA and a few rivals, meanwhile, offered lower rates, flexible terms and sophisticated computer-aided marketing and underwriting.
Jason Stewart, an analyst with Friedman, Billings, Ramsey and Co., said the company's "mass customization" model, tailoring marketing pitches and terms to specific incomes, credit history and shopping patterns, brought the company fans on Wall Street and expanding market share.
Capital One specialized in the middle to lower-end of the market and honed collection techniques that others copied, Bove said.
At year-end, Capital One was the nation's sixth-largest credit card company, with 7.5 percent of the market.
The company goes to great lengths to stress its differences with MBNA and that company's single-business model. In investor presentations, Capital One points to a string of acquisitions starting in the late 1990s that moved the company into auto loans, overseas consumer lending and, earlier this spring, conventional banking, with its $5.35 billion purchase of New Orleans-based Hibernia Corp.
As of the end of last year, 39 percent of the company's outstanding portfolio was balances other than U.S. credit card loans.
Its future, analysts say, depends on how well it can achieve growth in its new businesses, particularly auto loans, as the credit card business sags under a saturated market and financially stretched consumers.
Abromavage said the moves in recent years indicate a desire to move beyond credit cards and stay independent.