Capital One Posts Profit on Lower Reserves for Bad Loans

Capital One Financial Corp., the McLean, Virginia-based credit-card company, reported first- quarter profit on decreased losses for bad loans. Shares surged in late trading.

Net income was $636.3 million, or $1.40 a share, compared with a loss of $108.1 million, or 44 cents, in the year-earlier period, the bank said today in a statement. The average estimate of 24 analysts surveyed by Bloomberg was for 58 cents.

“We’ve demonstrated our resilience through the most challenging economic cycle we’ve seen in generations, and we believe that charge-offs in our consumer-lending businesses likely peaked in the first quarter,” Chief Executive Officer Richard Fairbank said in the statement.

Capital One climbed 8.3 percent to $49.32 at 5:01 p.m. The stock closed at $45.55 in New York Stock Exchange Composite trading.

Fairbank, 59, who repaid $3.56 billion in government aid in June, is seeking to boost profit as unemployment remains stuck at 9.7 percent for a third month and new federal rules on credit cards cut into revenue. The bank is aiming to offset declines in loan balances and weak demand for credit from consumers.

Capital One said its loan-loss provision declined $368.6 million in the quarter from the earlier period, due in part to a release of $566 million in reserves.

Net income from continuing operations was $719.5 million, the company said. Revenue declined $79.3 million, or 1.8 percent, compared with the fourth quarter as loans declined $4 billion, the bank said.

Total credit-card write-offs totaled $2 billion, up from $1.1 billion in the year-earlier period.

Card Revenue Declines

Domestic credit-card revenue declined $91.7 million, or 3.6 percent compared with the fourth quarter, while international credit-card revenue decreased $2.8 million, or 0.8 percent compared with the prior period, the bank said.

Capital One expects revenue margins in the domestic credit- card business to decline to 15 percent by the end of 2011, the statement said. The company reported a 17.1 percent margin in the first quarter.

Capital One said in January that it won’t pay Fairbank any salary, bonus or other form of cash compensation for 2010, and will instead pay him in stock and options, according to a regulatory filing. Fairbank hasn’t received a salary, bonus, retirement contributions “or other more traditional forms of compensation” since 1997, company spokeswoman Julie Rakes said in an e-mail in January.

To contact the reporter on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net

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