Capital One Profit Surges on Strong Card Spending, Lower Losses
20 July 2018 - 9:50AM
Dow Jones News
By AnnaMaria Andriotis
Capital One Financial Corp.'s second-quarter profit rose sharply
as consumer card spending surged and credit losses fell.
Net income for the quarter surged 84% to $1.91 billion, or $3.71
a share, from $1.04 billion, or $1.94 a share, in the year-ago
period. Revenue rose 7% to $7.2 billion from $6.7 billion.
Results beat analyst estimates, and shares were up 2% in
after-hours trading Thursday.
The loan performance of the company, which has a large subprime
card business, often serves as a gauge for consumers' willingness
to spend and their ability to pay back their debts. After rising
for many quarters on a year-over-year basis, the company's net
charge-off rate for its domestic card business fell to 4.72% in the
second quarter compared with 5.11% a year prior. That was the first
year-over-year decline in this metric since the second quarter of
2015.
Richard Fairbank, Capital One's chief executive, said
performance in the domestic card business has turned a corner
"We are now on the good side of growth math," he said on an
earnings call Thursday. "Credit performance on the loans booked
during our growth surge [between 2014 and 2016] has now turned and
is improving year over year."
Also helping Capital One's loan performance is its recent
acquisition of the credit-card portfolio of outdoor-gear retailer
Cabela's, whose cardholders tend to have high credit scores.
Provisions for future credit losses in Capital One's domestic
card business fell 18% from a year ago. Purchase card volume
increased 17% from a year prior, while card balances rose 8%.
Non-interest expenses totaled $3.4 billion, mostly unchanged
from a year prior as the company continues to invest in becoming
more of a digital bank.
Capital One also is looking to become a bigger force in merchant
card partnerships. The bank is in talks to become the issuer of
Walmart Inc. credit cards, according to people familiar with the
matter, a change that would be a major shakeup in the card
industry. Synchrony Financial has been Walmart's exclusive card
issuer since 1999.
Mr. Fairbank said Capital One is looking for a merchant partner
with a strong brand and commitment to the card program as an avenue
of growth.
Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com
(END) Dow Jones Newswires
July 19, 2018 19:35 ET (23:35 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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