Near-term losses by New Orleans-based Hibernia could be balanced by expected influx of government funds for rebuilding.

Steven Marlin, Contributor

September 8, 2005

1 Min Read

Hurricane Katrina continues to impact the economy of the Gulf Coast region in unexpected ways. Because of the hurricane, Capital One Financial Corp. has renegotiated the acquisition price of New Orleans-based Hibernia Corp. to $5 billion, a 9% reduction from the previous price, the companies said Wednesday. The companies expect the deal to close in the fourth quarter.

Capital One was well into the process of integrating Hibernia's banking systems with its own information systems when the hurricane struck. Hibernia's critical systems are up and running, and 47 of the 107 branches affected by Katrina are open. Of the 60 branches yet to be reopened, 21 appear to have sustained significant damage.

Capital One is acquiring Hibernia, which has 321 branches in Louisiana and Texas, as part of a diversification strategy to expand beyond its core credit-card business to become a full-service lender, including auto loans, savings, home loans, health-care loans, insurance, and small-business loans.

The near-term losses likely to be sustained by Hibernia in its retail banking business are balanced by the prospect of a massive effort to rebuild New Orleans, which could benefit Hibernia significantly, says Bart Narter, senior analyst with research company Celent.

Over the past week, the companies have focused on assessing the impact of Katrina on Hibernia's operations, including its branches, headquarters, loan portfolio, and future business prospects in light of the federal and state aid likely to be received by its customers.

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