WASHINGTON The Federal Reserve will meet on Wednesday to consider Capital One Financial Corp's (COF.N) bid to acquire ING Groep NV's (ING.AS) U.S. online banking unit, a deal criticized by some consumer groups.
Capital One announced plans last year to buy online deposit-taker ING Direct for $8.9 billion in the biggest U.S. bank acquisition since Congress passed the Dodd-Frank financial oversight law in July 2010.
The deal has generated concern from consumer groups who have argued it would create another "too big to fail" bank, even as regulators try to create a financial system less likely to need taxpayer bailouts in response to the 2007-2009 crisis.
The Federal Reserve said in a posting on its website on Monday that it would consider the merger application on Wednesday and that a "final announcement" would follow the closed meeting.
John Taylor, president of the National Community Reinvestment Coalition, which has led the charge against the merger, warned of dire consequences in an interview if the Fed approves the deal that Capital One says will make it fifth-largest by deposits.
"God help the Federal Reserve and, more importantly, God help the country if the fifth largest bank in the country fails..," he said. "God knows what contagion effect it would have on other banks."
Capital One wants to buy the ING business for its deposits, which can be used to fund more loans, and to expand its customer base. Executive said last month they expected to close the deal by the end of March and also complete the purchase of the U.S. credit card portfolio of British banking giant HSBC Holdings Plc (HSBA.L) by the end of June.
"We look forward to receiving approval and closing our transaction in 1Q 2012," Tatiana Stead, a spokeswoman for Capital One, said on Monday.
The company recently hired more people and increased spending to prepare for the new customers to come with the deals. The increased spending pushed net income down 42 percent in the fourth quarter from a year earlier, which triggered a 5 percent one-day drop in the company's stock on January 20.
The acquisition, combined with the bank's bid to take over HSBC's (HSBA.L) US credit card business, would make Capital One the seventh largest U.S. bank by assets, as of the end of the third quarter of 2011, according to SNL Financial.
Capital One announced its acquisition of ING in June, generating a hailstorm of opposition, including a letter from Representative Barney Frank, co-author of Dodd-Frank, urging the Fed to scrutinize the deal.
The Fed responded by announcing the first public hearings on a bank merger since Bank of America(BAC.N) acquired Countrywide in 2008.
The central bank is required by the Dodd-Frank law to assess the risk a merger poses to the economy.
In three nationwide hearings last year, consumer groups slammed what they described as the bank's excessive focus on risky credit card debt, arguing the bank could destabilize the financial system or require a bailout if the debt goes sour.
They also accused the company of failing to extend Federal Housing Administration-insured loans to people with lower but agency-accepted credit scores, and steering borrowers to subprime credit cards instead of traditional loans.
Capital One has hit back with promises to boost hiring and community investment, painting itself as a consumer lender far removed from the Wall Street excesses that prompted the financial crisis.
(Reporting By Alexandra Alper and David Henry in New York; Editing by Tim Dobbyn)