Capital One Declines as Profit, Guidance Miss Estimates

Capital One Financial Corp. (COF), the lender that gets more than half of its revenue from credit cards, fell the most on the Standard & Poor’s 500 Financials Index (S5FINL) after fourth-quarter profit missed analysts’ estimates.

Capital One dropped 7.5 percent to close at $56.99 in New York, the most since August 2011. Net income was $1.41 a share for the three months ended Dec. 31, the McLean, Virginia-based company said yesterday in a statement. That fell short of the $1.59 average estimate of 21 analysts surveyed by Bloomberg.

“Investors will be disappointed in the performance this quarter, and will likely be discouraged by some of the guidance out of the company for 2013,” Jason Arnold, an analyst at RBC Capital Markets, said in a note after the results were announced.

The lender said quarterly revenue in 2013 would be about the same as the fourth quarter’s $5.62 billion, short of the $5.76 billion first-quarter 2013 estimate of 12 analysts surveyed by Bloomberg. Net interest margin, the gap between what banks pay depositors and what’s earned on loans, fell to 6.52 percent, a 0.45 percentage-point drop from the third quarter.

Capital One set aside $1.15 billion for loan losses in the fourth quarter, an increase of $290 million from a year earlier and $137 million over the third quarter. The increase occurred as fewer loan losses were covered by acquisition accounting.

Chief Executive Officer Richard Fairbank, 62, spent more than $28 billion on acquisitions since 2005, including the purchase last year of HSBC Holdings Plc’s U.S. card business. Capital One also bought ING Groep NV (INGA)’s online U.S. bank, which helped boost deposits by more than $80 billion.

Dividend Plan

Full-year net income of $3.52 billion increased 12 percent over the prior year. Fourth-quarter income from continuing operations was $1.42 a share, missing the $1.58 adjusted average estimate of 29 analysts surveyed by Bloomberg.

Fairbank repeated yesterday that investors can expect an increase in the dividend this year, and that the lender won’t initially seek to repurchase shares. The company must get approval to distribute capital from the Federal Reserve, which subjects the largest banks to annual stress tests.

“Given that we did not request share repurchases right off the bat, we’ve taken a somewhat conservative approach,” he said on a conference call. “We felt the best thing to do was to focus that request on dividends and get to a meaningful level.”

Capital One’s quarterly payout is 5 cents a share, yielding about 1.4 percent annually. The company may raise the dividend to 18 cents a share, KBW Inc. analysts led by Fred Cannon estimated in a Jan. 13 note.

Capital One’s loans at least 30 days overdue, a signal of future write-offs, averaged 3.66 percent during the final three months of last year, the highest among the six-biggest U.S. issuers, company filings show.

The lender will rebrand ING Direct USA as “Capital One 360” in February, replacing ING’s orange-ball logo with a design incorporating the new name, according to a December e- mail to customers.

To contact the reporters on this story: Dakin Campbell in San Francisco at dcampbell27@bloomberg.net; Elizabeth Dexheimer in New York at edexheimer@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net

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