Jan. 10 (Bloomberg) -- Capital One Financial Corp., the largest independent U.S. credit-card issuer, said fourth-quarter profit was 44 percent below analysts' estimates as more borrowers failed to repay their debts.

Capital One's operating profit was about 85 cents a share, compared with the $1.52 average estimate of 17 analysts surveyed by Bloomberg before the announcement. The decline was caused by $1.9 billion of loan-loss provisions and $80 million in legal reserves, the McLean, Virginia-based company said today in a statement. The company dropped 1 percent in New York trading after declining as much as 10 percent earlier.

Capital One raised its forecast for failed loans in 2008 to $5.9 billion, from the range of $4.9 billion to ``the mid-$5 billions'' given as recently as December. Fallout from the collapse of the U.S. subprime mortgage market has led to more than $97 billion of writedowns and loan losses at the world's largest financial companies, and a 6.8 percent drop in the Standard & Poor's 500 Index since the end of June.

``It's another bank in the negative credit-market slipstream,'' said Howard Wheeldon, a senior strategist at London-based brokerage BGC Partners. ``The outlook for bad loans remains grim.''

The company, which spent $1.4 billion in marketing in 2006, lowered its full-year 2007 profit estimate to $3.97 a share from about $5. It posted an $81.7 million third-quarter loss, the first since 1994, after closing its mortgage business and cutting 1,900 jobs.

GreenPoint Mortgage

Capital One's fourth-quarter profit estimate excludes a 25- cents-a-share loss related to the shutdown of its GreenPoint Mortgage unit.

The legal expense is related to Visa Inc.'s $2.25 billion settlement of a lawsuit by American Express Co. accusing the company of barring member banks from offering competitors' cards. Capital One, a Visa member, will be dropped as a defendant in the suit, according to the Nov. 7 agreement.

Capital One, led by Chief Executive Officer Richard Fairbank, 57, fell 43 cents to $42.92 in New York Stock Exchange Composite trading at 4:01 p.m. It has lost 43 percent in the past 12 months.

The slowing economy has reduced borrowers' ability to repay credit-card and auto loans, the company said. Government reports in the past two weeks showed home sales fell to the lowest in 12 years and the jobless rate jumped to a two-year high of 5 percent in December. Personal bankruptcy filings in the U.S. rose almost 40 percent in 2007, according to the National Bankruptcy Research Center.

Mortgage Spillover

``Credit-card performance will noticeably deteriorate during the year, given spillover from residential mortgages, weaker economic trends, and higher levels of unemployment,'' Fitch Ratings said today in a report on the U.S. industry.

Capital One's loans 30 days or more overdue in December rose to 3.87 percent, compared with 3.68 percent reported a month earlier. Charge-offs, or loans the company deemed uncollectible, in the U.S. credit-card segment rose to 5.74 percent from 5.34 percent the month earlier.

``We are now in the holiday season hangover period, when consumers typically face larger-than-average credit-card bills,'' said Red Gillen, an analyst with Celent, a Boston-based consulting firm, in an e-mailed statement. ``Given the economy's flirtation with recession, consumers' ability to repay these inflated bills is under more pressure.''

Available Liquidity

The company finished 2007 with more than $29 billion in available liquidity, and expects to continue returning excess capital to shareholders. It expects to pay a dividend of about 25 percent of net income in February, the statement said.

Capital One was downgraded by Merrill Lynch & Co. and Morgan Stanley analysts in December on concern that lower-than- expected consumer spending will limit loans made by credit-card companies.

Merrill analyst Kenneth Bruce cut Capital One to ``sell'' from ``neutral,'' after consumer confidence dropped in December to the lowest in more than two years as Americans paid more for gasoline and heating oil and lower property values constrained their ability to draw on home equity.

Capital One is scheduled to report final fourth-quarter results on Jan. 23.

To contact the reporters on this story: Hugh Son in New York at hson1@bloomberg.net; Charles Siler in San Francisco at csiler@bloomberg.net

Last Updated: January 10, 2008 19:01 EST