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On Friday, Capital One Financial Corp. (COF - Analyst Report) entered into a definite agreement to acquire Bethesda-based Beech Street Capital. The transaction is expected to close by fourth-quarter 2013. The terms and conditions of the deal have not yet been disclosed.

Founded in 2009, Beech Street offers government backed mortgage loans through government sponsored companies – Fannie Mae (FNMA) and Freddie Mac (FMCC) – along with the Federal Housing Administration (FHA). Notably, the company is the sixth largest agency originator in the U.S. and has a loan portfolio worth $10.0 million.

Until recently, Capital One derived the major portion of its revenues from credit card sales. However, with the gradual stabilization of the economy and the recovery of the housing market, Capital One intends to expand its commercial real estate business. The above-mentioned acquisition, once completed, will expand Capital One’s multifamily business and enable it to become one of the top 5 multifamily lenders in the U.S.

Together with Beech Street, Capital One will offer services comprising agency program loans, bank balance sheet loans, treasury services and capital markets solutions. The latest deal is therefore in line with Capital One’s commitment to offer customers a one-stop banking solution.

Further, the merged entity will be financially stronger, supported by Capital One’s diverse product offerings and Beech Street’s expertise in the field, enabling it to compete with huge banking giants. Notably, other banks in the government-backed multifamily mortgage business include Citigroup, Inc. (C - Analyst Report), JPMorgan Chase & Co. and Wells Fargo & Company.

Currently, Capital One carries a Zacks Rank #2 (Buy).

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