Capital One Posts Quarterly Profit as Costs for Bad Loans Fall

(Corrects date Card Act was passed in the 11th paragraph of story published yesterday.)

Capital One Financial Corp., the most profitable U.S. credit-card issuer last year, reported a higher-than-expected profit after a year-earlier loss, as improving consumer repayments cut costs from overdue loans.

The company had net income of $608 million, or $1.33 a share, compared with a loss of $277 million a year earlier, or 66 cents when including repayment of government aid, the McLean, Virginia-based company said today in a statement. The lender released $1 billion of loan-loss reserves, helping it beat the 88-cent average earnings estimate of 13 analysts surveyed by Bloomberg who didn’t adjust for one-time items.

“While economic and regulatory uncertainty remains, those same forces are creating attractive opportunities,” Chief Executive Officer Richard Fairbank said in the statement. “We continue to be well positioned to take advantage of emerging opportunities and deliver significant shareholder value over the long-term.”

A decline in U.S. credit-card delinquencies this year helped Fairbank, 59, boost profit even as consumers reduce debt balances and new U.S. rules weigh on margins. The stock may benefit if the trend holds, easing the need for provisions on bad loans, Michael Taiano, an analyst with Sandler O’Neill & Partners LP, said before the results were announced.

“From the standpoint of reserve releases, the market wasn’t giving much credit to any of the larger banks,” Taiano said in an interview.

Charge-Offs Ease

Capital One had a year-earlier profit of $223 million before repaying government aid. Not counting one-time items, the company’s profitability ranked No. 1 among U.S. credit-card issuers last year, according to the Nilson Report, an industry newsletter.

The lender said last week that net U.S. charge-offs fell in June to 9.28 percent on an annualized basis, down from 9.48 in May. The 30-day-plus delinquency rate was 4.79 percent, according to a regulatory filing.

Consumer spending, which accounts for about 70 percent of the U.S. economy, may still remain muted as people focus on “deleveraging,” Fairbank said at a June investor conference. Capital One’s provisions for bad loans declined to $723 million, from $1.48 billion in the first quarter.

Capital One rose 2 percent to $42.08 at 4 p.m. in New York Stock Exchange Composite trading, and has gained 9.8 percent this year. The shares fell 3 percent in after-hours trading.

The company repaid $3.56 billion in government aid a year ago. The company reported net income of $636 million, or $1.40 a share, in the first quarter.

In 2009, legislators passed the Credit Card Accountability, Responsibility and Disclosure Act, and the three months ended June is the first full quarter when the impact will be felt, Taiano said. The rules wiped out lenders’ most lucrative billing practices, including their ability to raise rates on existing debt at any time, and required them to give cardholders 45 days’ notice on any rate increase.

To contact the reporter on this story: Dakin Campbell in San Francisco at

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