Capital One profits plummet 40%
Capital One Financial Corp. said Thursday its second-quarter earnings fell 40%, due to a sharp increase in its loan-loss provision amid further deterioration in the credit markets.
The financial services firm’s net income fell to $452.9 million, or $1.21 per share, from $750.4 million, or $1.89 per share, a year earlier.
Analysts polled by Thomson Financial, on average, had forecast earnings of $1.31 per share for the quarter.
Total revenue fell nearly 5% to $3.35 billion from $3.51 billion during the year-ago period.
Capital One’s (COF, Fortune 500) profit dropped as it was forced to set aside more cash to cover more loan defaults. The company, which has a large presence in the credit card lending business, has faced rising defaults over the past year, like nearly all other banks and lenders.
Capital One set aside $829.1 million during the second quarter to cover bad loans, more than double its year-ago $396.7 million reserve. The loss provision did actually decline from the fiscal first quarter, when Capital One allocated $1.08 billion for loan losses.
Charge-off rate increase. In its national lending segment, which primarily consists of its U.S. credit card business and auto financing division, Capital One’s charge-off rate in the second quarter rose to 5.67% from 3.47% during the year-ago period.
The charge-off rate measures the amount of loans written off as not being repaid, compared with a company’s total loan portfolio.
Within its U.S faxless cash advance. cards division, the charge-off rate rose to 6.26% from 3.56% during the second quarter of 2007. Capital One said it anticipates the rate will be in the low 6% range in the third quarter, but will rise to about 7% in the fourth quarter.
The U.S. card division’s net income fell 43% to $340.4 million, despite a 5% rise in revenue to $280.7 million. In the auto finance division, profit slipped to $33.6 million from $38 million during the year-ago period, and its charge-off rate rose to 3.84% from 2.35%.
Profit in the company’s local banking unit fell 57% to $67.1 million, primarily due to an increase in loss provisions.
Shares of Capital One fell $1.28, or 3%, to $41.52 in after-hours trading. The company’s shares rose sharply during regular trading, gaining $5.52, or 14.8%, to close the day at $42.80.
Filed under: finance by Wolf