Diversified Bank Capital One - Essay Example

Capital One Table of Contents Introduction 3 Question 3 Question – 2 4 Question – 3 6 Question – 4 7 Question – 5 8 Question – 6 9 Referencing 10Introduction ‘Capital one’ is a diversified bank that offers several financial products as well as services to customers who can be an individual, a small business enterprise or even a commercial client. In America, the company has a strong brand image and it is one of the top 10 banks on the basis of deposits (Capital One, 2010). In the past, the company has under gone several acquisitions; as for example in 2005, Capital One acquired Hibernia National Bank and entered the retail business. Again in 2006, Capital one acquired North Fork Bancorporation, a New York based bank. On December 04, 2008, Capital One acquired a well known bank called Chevy Chase Bank. As per the deal, Capital One purchased the bank by paying $445 million in cash and 2.56 million shares of Capital One worth $75 million (Gaithersburg Local, 2008). Question – 1 Identify and describe the key environmental forces that have immediate strategic implications for Capital One. Companies are directly affected by the external environmental forces that consist of political, economic, legal, social and technological elements. Changes in these external forces directly affect the company which necessitates it to modify the corporate strategies accordingly. In 2008-09, the world economy was shaken by a recessionary turmoil and the financial sector was the worst hit. Functioning exclusively in the banking business, the company is at a high leveraged state. When market conditions are favorable, their revenue as well as profitability increases quite rapidly but when the market conditions are hostile, the company faces a sharp fall in business. The economic condition has revived in the developing countries but the developed countries like UK and US will take more time to come out of this economic shock. Therefore economic condition is one of the vital forces that Capital One needs to consider. In terms of technology, Capital One enjoys a sound position. The political condition is quite stable in US hence this will not be a major concern. After the economic recession in US, the government is in the process of introducing certain changes in its legal framework to exercise a better control on the financial market. Hence, Capital One will need to understand the changes in the legal policies and should make the desired modification. Apart from the above mentioned forces the competitive force prevailing in the US market needs to be taken into consideration by Capital One. The retail banking industry is highly attractive which lures new entrants into this industry. The lenient strategy maintained by the government of US is an added advantage for the new entrants. The new entrants have not only increased the level of competition but have also divided the market share among different banks. Certain international banks are also entering the banking sector of US which is making the competition fiercer. So along with economic and legal forces, the company also needs to focus on the competitive forces while developing the strategies. Question – 2 Identify and describe the capabilities and weaknesses within Capital One that have immediate strategic implications. Capital One has been the first company to pioneer in the retail business and mass marketing of credit cards. It also offers different type of loans like house loan, car loan, educational loan etc. At present, Capital One is ranked as the 4th largest customer of United States Postal Service. In terms of deposit portfolio, it enjoys the 8th rank in the United States (Cheap-Credit-Cards.org. 2010). The company enjoys a large market share in the specific business of retail banking and specializes in credit card and loan business. The company was operating in the banking sector since 1988 and entered the retail banking business in 2005 after acquiring Hibernia National Bank (Greg, 2005). This acquisition provided a strong customer base and the expert knowledge of the employees who have been in this business for years. The bank manifested the same strategy of growth as well as diversification by acquiring Chevy Chase Bank in 2008. There are certain specific qualities in Capital One that makes it ideal for executing such strategies. The company posses a strong vision and always takes the best-of-breed approach while acquiring new companies. The company makes expensive deals and internalizes the acquired companies to suit its prevailing system. This explains as to why Capital One maintains a high degree of flexibility in its business structure. Often the acquired companies have standalone operations which are capitalized by Capital One to serve specific products to specific segments in the market (McGee, 2006). However, this high dependency on one kind of business hinders its business growth. The company mainly offers credit cards, auto loan and global financial loans. The banking industry is highly dependent on the economic condition of a country. During economic boom, the banking industry performs well and in the recessionary phase this industry incurs huge loss. Question – 3 Define Capital Ones business-level and corporate-level strategies and evaluate each for their potential for continued success. Capital One follows two main corporate level strategies- growth strategy and diversification strategy. In US, the company has a well developed retail business in credit cards and different type of loans. Acquisition and mergers are gaining significance in the present world because the companies now believe that a big and diversified business will yield higher profitability. Such opinion propels the companies to acquire their hostile competitors. This not only minimizes the level of competition but also helps them to gain the position of market leader. The same corporate strategy is being used by Capital One for growth and diversification of its business. However, this strategy is not always profitable for the company. Often the companies acquire such businesses which do not match their core competency resulting in adverse consequences. Capital One acquired GreenPoint Mortgage business, to enter that specific sector and to compete with NorthFork Bank. However, as the aftermath of recession in US, Capital One failed to make the desired profit from this acquired business and decided to close it down. This mortgage business had resulted in a loss of $860 million and severely affected the profitability of the company (Associated Content, 2007). The term corporate strategy refers to the vision of the company and explains what the company desires to achieve in the long run. However, the company has to operate in a dynamic environment where its operations are influenced by competitors, buyers, change in technology and legal framework of the country. The company thereby needs to modify its strategies accordingly. Every unit executes a unique strategy popularly known as business strategy (Snedaker, 2005, p.69). Capital One uses its information technology to gather information from the customers so as to provide them with tailored financial products like credit card or loans to suit their unique requirement. This flexibility in the financial products is one of the business strategy used by Capital One to enhance the level of satisfaction in customers. Capital One acquires different companies to enter different business sector in financial industry. Such acquisitions help the company to focus on a distinct customer base or a target market. In short term basis, this is a good way to enter different market segments. However if Capital One fails to understand the unique requirement of the customer, the purpose of such acquisition will be lost. Question – 4 Evaluate the strategic fit of Capital Ones recent acquisitions. On February 27, 2009, Capita One announced that it had finished the acquisition of Chevy Chase Bank. With this Capital One became the largest commercial bank and customer institution (Trading Market, 2009). Chevy Chase Bank has the largest network of branches and ATM in Washington and offers a wide array of loans. Chevy Chase Bank is a local bank, so its acquisition is expected to provide synergy to Capital One. It has not only offered a large market share to Capital One but its experienced management is also an asset that Capital One should cherish. This recent acquisition made by Capital One complements the corporate as well as business strategies of the company. This acquisition will assist the company to diversify its business by entering certain new target markets where Chevy Chase Bank already has a good market share. This acquisition will also assist Capital One to retain its growth strategy. Although such prospects look doom in the current financial scenario to which US too is a victim but the acquisition will prove profitable as soon as the market conditions are revived. Question – 5 Describe the key strategic issues raised by the companys acquisition strategy. The key issues raised by the company’s acquisition strategy are as follows: In the present market where almost all the companies operating in financial industry are facing a decline in revenue and profitability, will this acquisition prove itself profitable for the company? The recent acquisition made by Capital One was a costly one. Will it hamper the prevailing business of Capital One? Both Capital One and Chevy Chase Bank have distinct organizational culture and management style; will they be able to adjust with each other? Does this deal bring further leverage to the business risk possessed by the company? The most important question raised during the recent acquisition made by Capital One in 2008-09, is why it underwent such high profile acquisition when the global conditions were not stable. Question – 6 Assess Capital Ones international position. Capital One has made 42 acquisitions from 1987 onwards for taking stake in two companies and has also undergone 19 divestitures. The headquarters of Capital One is located at Nottingham (England) and it also operates in UK. Earlier, the company was also operative in other international markets like South Africa, Spain and France but with time the company moved out of these countries. At present, the US market contributes maximum market share of the company. US being a developed nation, its markets are almost saturated and the degree of competition is also high. To enhance the market share and to reduce the competition, Capital One often acquires the business of its competitors but this strategy might no longer remain useful in the coming future. High reliance on a single market increases the business risk of Capital One. To gain the desired market share the company needs to diversify its business by entering other nations which offer unexplored market potential. Referencing Associated Content. (August 28, 2007). Core Business Strategy and Capital One Bank. Retrieved May 5, 2010 from: http://www.associatedcontent.com/article/354354/core_business_strategy_and_capital.html. Capital One. No date. About Capital One. Retrieved May 5, 2010 from: http://www.capitalone.com/about/. Cheap-Credit-Cards.org. (March 7, 2010). Capital One. Retrieved May 7, 2010 from: http://www.cheap-credit-cards.org/online-banking/us-banks/capitaloneonlinepayments/. Gaithersburg Local. (December 04, 2008). Chevy Chase Bank Acquired By CapitalOne. Retrieved May 5, 2010 from: http://gaithersburglocal.com/featured-articles/chevy-chase-bank-acquired-by-capitalone.php. Greg, L. R. (November 14 2005). Capital Ones acquisition of Hibernia Corp. goes forward. Al Business. Retrieved May 7, 2010 from: http://www.allbusiness.com/north-america/united-states-louisiana/1081017-1.html. McGee, M. K. (June 26, 2006). Capital One: A Serial Acquirer. Retrieved May 7, 2010 from: http://www.informationweek.com/news/global-cio/showArticle.jhtml?articleID=189601045. Snedaker, S. 2005. How to cheat at IT project management. Syngress. Trading Markets. February 27, 2009. Capital One Completes Acquisition of Chevy Chase Bank. Retrieved May 7, 2010 from: http://www.tradingmarkets.com/.site/news/Stock%20News/2199926/ Read More