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Capital One Closes Best Buy Deal

Zacks Equity Research

Capital One Financial Corp. (COF) completed the sale of certain private label and co-branded credit card accounts to Citigroup, Inc. (C). These card portfolios – worth nearly $6 billion in receivables – were related to electronics retailer Best Buy Co Inc. (BBY).

Capital One had announced the deal in Feb 2013.

Though the financial terms were not disclosed, the deal will have a neutral impact on Capital One’s earnings. Further, Capital One and Best Buy terminated the contractual credit card relationship that these companies shared.

Moreover, with the closure of the deal, Capital One will likely be initiating its share repurchase program. The company, in Jul 2013, had announced a share repurchase program worth approximately $1 billion through Mar 2014 following the approval of its capital plan in March.

Additionally, in consistence with its capital plan, Capital One hiked its quarterly dividend by 500% to 30 cents per share in May. Notably, this was the first time the company hiked its dividend and announced a share buyback program since the financial crisis.

Though Capital One decided to vend this credit card portfolio, the company had acquired a total of 23 such retail partnerships when it closed a deal to buy HSBC Holdings plc’s (HBC) U.S. credit card portfolio in 2012.

The company entered the store-branded credit card market in Jan 2011 with the acquisition of Hudson’s Bay Company credit card portfolio and related assets from GE Capital Retail Finance. This was followed by the buyout of another private-label credit card portfolio from Kohl’s Department Stores in Apr 2011.

However, with the divestiture of Best Buy’s card portfolio, Capital One is expected to face additional revenue growth challenges. Further, persistent rise in operating expenses remains a matter of concern.

Currently, Capital One carries a Zacks Rank #3 (Hold).

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