Rating Agencies: Capital One Deal Gets Kudos

Capital One Financial Corp., McLean, Va., has gotten a thumbs up from two of the rating agencies in how it is treating the option adjustable-rate mortgage portfolio it will acquire in its $520 million purchase of Chevy Chase Bank FSB, Bethesda, Md. Capital One will take a net credit mark of $1.75 billion for potential losses in the loan portfolio. Fitch Ratings, New York, said it believes Capital One "has made the appropriate valuation adjustments to the $11.4 billion loan portfolio, which includes $4.1 billion in option ARMs originated largely through a broker network." A statement from Standard & Poor's noted that it believes "the substantial $1.75 billion in credit marks that Capital One has factored into the price of this acquisition will buffer the firm from future loan credit losses as the gross credit mark equals 33% of the existing Chevy Chase option ARM portfolio." In addition, Capital One has a good track record of integrating institutions into its operations, especially ones with residential mortgage portfolios, S&P said, which added that on a pro forma basis, Capital One's residential mortgage portfolio will total $20.1 billion or 12.8% of total loans, equivalent to its current loan mix.