Capital One Profit Exceeds Estimates as Lending Margins Improve

Capital One Financial Corp. (COF), the worst performer this year in the KBW Bank Index, reported a first-quarter profit that beat analysts’ estimates as lending margins improved.

Net income fell 24 percent to $1.07 billion, or $1.79 a share, from $1.4 billion, or $2.72, a year earlier, the McLean, Virginia-based company said yesterday in a statement. Income from continuing operations, which excludes some items, was $1.92 a share, compared with the $1.62 average estimate of 27 analysts surveyed by Bloomberg.

Chief Executive Officer Richard Fairbank has spent more than $28 billion on acquisitions since 2005 to build what’s now the eighth-largest U.S. lender by assets. The firm said in March that the Federal Reserve didn’t object to its 2013 capital plan, which included a proposal to boost the quarterly dividend to 30 cents a share from 5 cents.

“Each of our businesses delivered solid results in the quarter and our balance sheet is strong,” Fairbank, 62, said in the statement. “We continue to generate significant capital and we’re focused on returning capital to our shareholders.”

Capital One climbed 1.3 percent to $53.50 in extended trading in New York yesterday. The shares declined 8.9 percent this year through the close of regular trading, compared with a 5.4 percent gain for the 24-company KBW Bank Index.

Revenue Climbs

Net interest margin, the difference between what banks pay depositors and what’s earned on loans, widened by 0.51 percentage point to 6.71 percent from the first quarter of 2012, according to the statement. Net revenue climbed 12 percent to $5.55 billion from $4.94 billion, matching the average estimate of 17 analysts surveyed by Bloomberg.

The company included $107 million of reserves to cover repurchases of soured mortgages in discontinued operations, according to the statement.

Consumer spending is cooling as the bank struggles to boost lending. Retail sales in the U.S., where Capital One gets more than 90 percent of its revenue, dropped in March by the most in nine months. The firm’s U.S. card balances fell to $70.4 billion in March, the third straight monthly decline, regulatory filings show.

In February, the bank said it would sell about $7 billion in Best Buy Co.-branded credit-card loans to Citigroup Inc., jettisoning more than 20 percent of the loans Capital One had purchased last year from London-based HSBC Holdings Plc. Chief Financial Officer Gary Perlin said in March the loans didn’t meet Capital One’s criteria.

American Express Co. (AXP), the biggest U.S. credit-card issuer by customer purchases, said April 17 that first-quarter profit climbed 1.9 percent to $1.28 billion as the New York-based lender’s more affluent clients increased spending.

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

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

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