What is the primary purpose of this 8-K filing for Capital One?

This 8-K filing primarily reports on Capital One's entry into a material definitive agreement to acquire HSBC's U.S. credit card business and its execution of interest rate swap transactions related to the pending ING Direct acquisition.

How is the purchase price for the HSBC credit card business determined?

The purchase price is calculated as the par value of acquired receivables plus an 8.75% premium, plus the appraised value of acquired real property, plus the net book value of other acquired assets, minus the net book value of all assumed liabilities. This amount is subject to certain adjustments outlined in the Purchase Agreement.

What is the significance of the interest rate swap transactions related to the ING Direct acquisition?

These swap transactions were initiated to mitigate potential adverse impacts of rising interest rates on the fair value of the ING Direct assets and liabilities between the agreement date and the closing date of the acquisition. However, because they are not accounting hedges, they could lead to volatility in Capital One's quarterly earnings as interest rates fluctuate.

What are the main conditions for the closing of the HSBC acquisition?

The closing of the HSBC acquisition is contingent upon several customary conditions, including receipt of required regulatory approvals without materially burdensome conditions, accuracy of representations and warranties, material compliance with agreement obligations, absence of any injunctions, and execution of ancillary agreements.

CAPITAL ONE FINANCIAL CORP 8-K: Material Agreements

Summary

Capital One Financial Corporation (COF) has filed an 8-K report detailing two significant events. The first, reported on August 11, 2011, concerns a material definitive agreement to acquire the U.S. credit card and private label credit card business from HSBC Finance Corporation and its affiliates. This acquisition involves a complex purchase price calculation based on receivables, a premium, real property, and other assets, less assumed liabilities, with an option to pay a portion in Capital One common stock. The second key event, reported on August 8, 2011, involves interest rate swap transactions entered into by Capital One to mitigate the impact of interest rate fluctuations on the fair value of assets and liabilities related to its previously announced acquisition of ING Direct. These swaps, with a notional principal of approximately $23.8 billion, are designed to hedge against adverse interest rate movements between the agreement date and the closing of the ING Direct acquisition. However, these swaps are not considered accounting hedges under U.S. GAAP and will be marked-to-market through the income statement, potentially leading to quarterly earnings volatility.

Key Highlights

1Capital One entered into a Purchase and Assumption Agreement to acquire HSBC's U.S. credit card and private label credit card business.
2The acquisition price is determined by par value of receivables plus an 8.75% premium, appraised real property value, net book value of other assets, minus net book value of assumed liabilities, subject to adjustments.
3Capital One has the option to pay up to $750 million of the purchase price in its common stock, valued at $39.23 per share.
4The transaction is subject to customary closing conditions, including regulatory approvals.
5Capital One entered into interest rate swap transactions totaling approximately $23.8 billion notional principal to manage interest rate risk related to the ING Direct acquisition.
6These swap transactions are not accounted for as hedges under U.S. GAAP and will cause earnings volatility due to mark-to-market adjustments.
7The company may implement further balance sheet management actions related to the ING Direct acquisition.

CAPITAL ONE FINANCIAL CORP 8-K Report, Material Agreement (Aug 12, 2011)

Summary

Key Highlights

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