Capital One’s Recent Acquisition Strategy essay
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To prepare for an upcoming meeting with the Board of Directors, Richard Fairbank (Chairman of the Board, CEO, and President) has hired your consulting firm to conduct an external evaluation of Capital One's recent acquisition strategy and to identify strategic issues confronting the company. You are to assess the company's ability to sustain growth with its current strategy and existing market conditions. The meeting is to be held next week and you have been assigned the task of sharing the results of your study with Fairbank's top management team.
1. Identify and describe the key environmental forces that have immediate strategic implications for Capital One.
The business operations of Capital One have been prone to many external and internal factors that have a profound effect especially on strategic fit. The recent growing concern over the validity of prolonged delinquency rates of cardholders has significantly affected Capital one’s business elements in numerous ways. This has dramatically increased the charge off rates for the cards, making it one of the highest chargers in order to sustain the business environment. This necessitated its acceptance of the Government offer of over 3 billion constantly increasing its operational costs in order to recover from a loaning trend. In the recent Capital One has reduced its guidance over the issuance of mortgage loans. This is an attribute of its little presence in the property market coupled by factors resulting from the recent depreciation of the dollar value, which has subsequently led to poor market development rate with regard to the stock market property indices (Clemons and Thatcher, 2009).
This affects its ability to perform a successful acquisition program since its funds are limited towards the provision of funds other critical market domains and business operations, which demand the same funds. The main aim of its acquisition is to develop a market niche in which it has adverse advantage over other players in these traditional markets. This essentially raises the current competition bars significantly high and attracts interested clientele to the Capital One (Clemons and Thatcher, 2009).
2. Identify and describe the capabilities and weaknesses within Capital One that have immediate strategic implications.
Capital one has tremendous capabilities of sustaining their recent acquisition move. This is because of the fact that it is still a developing entity when compared to other competitors. It therefore has impending advantage due to the factor that it is yet to saturate majority of its traditional markets. This is a visible phenomenon both on local and international trade environments. Another capability associated with Capital One is its risk management plans, which come handy when instituting critical acquisition strategies, although their affectivity is considered quite low compared to some of their counterparts.
Capital One has various forms investment portfolios subjected to development in the essence of growth (Clemons and Thatcher, 2009). This therefore gives them significant advantage especially when considering the fact that they have experience in the banking environment. Fundamental weaknesses within Capital One that have significantly affected its business operations include the profound inability to maintain a stable presence in its traditional market niche due to constantly increasing competitive forces around it. For instance, the slow act necessitated against the effect from its cardholders was unnecessary as it led to the bank accruing significant losses in its operations for that quarter (Kuepper, 2010). Another weakness is seen Capital One’s few varieties of financial stimulus packages access, which substantially reduces its influence when it comes to major financial decision-making avenues where their rather complimentary economic giant counterparts have a better chance to move a turnaround motion.
3. Define Capital One's business-level and corporate-level strategies and evaluate each for their potential for continued success.
Capital one is the pioneer of the credit card business hence they still hold significant market share especially in the United States. Since then a number of players have shown an increased interest in the market leading to an increasing number of competitors in their previously competitive markets. Its retail banking prospects are constantly increasing and the trend has really picked up in the recent past. The current wave experienced in the money markets occasioned by the fluctuating US dollar has profoundly affected its current growth fundamentals.
Capital once continues to launch new strategies despite this impending factor on its service provision fundamentals. The current strategies are relevant in the current competitive environment in which capital one continues to be successful in the establishment of new product portfolios (Clemons and Thatcher, 2009). This has seen the company amassing a significant amount of wealth in form of deposits and this has seen it spark new interest from competing partners. For instance, the many sponsorship events across lands in which they operate like in Canada where they have sponsored various curling sport events.
Capital one continues to groom and maintain an above mark corporate image among other existing corporate entities. This is able through the enactment of long-term approaches in pursuance of international accreditation level. The company has launched major operations in the international scene and this has significantly given the undue advantage over other global partners pursuing similar international markets in the global arena. Several of its corporate strategies have seen significant success in the recruitment of long lasting corporate level strategies formulations.
The most visible approach is the acquisition of the People First, which led to a change of market interest by launching online auto lending business options. Buyers were in a position to utilize their funds to acquire new car models through a blank check system. This approach gave it a ‘people first’ label making it the company that substantial recognizes the population concerns. Capital One has also pursued other traditional corporate strategies in promoting itself as a branding strategy (Clemons and Thatcher, 2009). For instance, its sponsorship deals given to numerous sports teams e.g. the Florida Super Bowl Tournament, college/university football leagues, and football clubs like Sheffield United found in England.
4. Evaluate the strategic fit of Capital One's recent acquisitions.
There is substantial capability for Capital one in enhancing its strategic fit with its other running programs. The manner in which recent acquisitions are done suggests that there exists an critical integration element. This entirely bases its provisions on the integration risk assessment schema, which provides a tool for performing the very important element closing critical transactions. For instance, the decision to acquire a stake in Chevy Chase Bank through inclusion of a stock element was a strategic move aimed at increasing the current portfolio of its credit card standing in the money markets.
The move would see it acquire more customers for its money lending activities in a stable market environment. This considering the fact that chase bank has a developed national network which Capital one plans to pursue actively. The strategic fit is very critical in the bank’s marketing strategy. This evident from the recent much looked forward to acquisition of NetSpend Holdings Ins, which is a prepaid credit card marketer. By acquiring such critical entities that go in line with its business objectives, Capital one potentially intends to utilize the machinery for its marketing goals to subdue further utilization of the same by its competitors.
Another critical acquisition move by Capital one can be seen in the $14.6 billion acquisition plan for North Fork (InvestorGuide.com, 2010). This move gave the bank a better approach towards streamlining the credit card arena. It was just but among other equally important acquisitions. The move is entirely strategic as it provides the bank with a diversified portfolio on which to achieve their perceived financial goals. In addition, it serves to fulfill the bank’s belief towards expansion and mainstreaming of the lucrative credit card entity.
5. Describe the key strategic issues raised by the company's acquisition strategy.
Several strategic issues that come into play regarding the cumulative risk the bank is taking by constantly acquiring new markets niches. There is the major question of sustainability of such options in the long run. This in the view of the recent move in which Capital one’s management suspended their planned move to acquire NetSpend Holdings Inc (Wilchins, 2007). Considering the fact that NetSpend Holdings Inc is a credit card marketing company postulates a strategic fit element with the banks’ core business initiatives. The acquisition strategies are hence aimed at giving Capital One significant advantage over other key players in the market domain. By acquiring markets which have a direct benefit to a core product then they stand to oust their competitors by confronting their strategies.
Other strategies raised by the bank’s continued move towards acquisition concerns the adoption of a global brand name like other familiar entities. This furthers their expansion prospects past the already established niche markets of Canada and United Kingdom. In addition, the increased acquisition through pursuance of stock purchases in combination with cash options serves to increase Capital One’s presence in the stock exchange and money markets. This way more and more investors are in a position to acquire stakes in the bank, which critically enriches their financial standings as a lending, credit card, and banking institution.
6. Assess Capital One's international position.
Capital one has a significant influence in the global scene in numerous ways as evident by the manner in which their transactions accomplish themselves. The corporation has successfully maintained a consistent profile through its calculated moves aimed at acquiring significantly huge stakes in potential markets. The fact that it has literally made the retail banking and small business markets its colony suggests that its management has significant experience in these arenas hence there increased in this domains.
The expansion of its credit card loans, small business-lending activities through its global financial services segment services in critical off shore markets like United Kingdom and Canada is very evident. The bank therefore holds a critical position in its international rating well above other small independent banking entities. The elevated status is also an attribute of their corporate strategies that have contributed in making Capital One a preferred global brand.