Capital One Financial agreed to buy one of ING Group’s crown jewels in the U.S. - its online banking unit - for $9 billion in cash and stock.  The deal is one of Capital One's biggest efforts yet to add to offerings beyond credit cards and other consumer lending.  ING will get $2.8bn in new shares, giving it a 9.9% stake in Capital One.  ING also will have the right to name a director on Capital One’s board.

Capital “What’s in your wallet?” One is seeking to build up a national banking franchise, and buying ING Direct USA - one of the best-known online banks in the country - will help give it a broader platform and a huge source of lower-cost funds.  Currently the 8th biggest bank in the country by deposits, Capital One will rise to the 5th place. 

“The acquisition of ING Direct is a game-changing transaction that delivers attractive deal economics immediately and compelling long-term strategic value,” Richard D. Fairbank, Capital One’s chairman and chief executive, said in a statement.

ING Crown Jewels.   ING was reluctant to shed its online banking business, one of its crown jewels and a leader in the expanding direct banking industry.  But it was forced to sell off the unit by the European Commission as part of the bank’s 10 billion euro bailout in 2008.

Other bidders for the online bank included General Electric’s GE Capital and the CIT Group.  One of the reasons Capital One prevailed was its willingness to shoulder more than $60 billion worth of mortgages and mortgage-linked securities.

In order to help pay for the transaction, Capital One said it planned to raise about $2 billion from a sale of new shares and $3.7 billion from selling new debt.  But the bank insists that the deal will pay for itself quickly. Capital One expects to reap $90 million in savings from combining back-end systems and staff, as well as $200 million from lowering funding costs. The transaction will also add to Capital One’s earnings per share beginning next year.   [DealBook, 6/16/11]