Capital One Financial Corp., the Virginia bank focused on credit-card lending, may have faced Federal Reserve resistance to raising its dividend because of concerns it will incur more costs linked to souring loans, according to Nomura Securities International Inc.
Fed examiners’ “potential concerns” may have focused on subprime card loans or demands that the McLean, Virginia-based bank repurchase faulty mortgages sold to investors, Brian Foran, a Nomura analyst in New York, wrote in a note to clients today.
Still, Capital One’s average dollars per delinquency on card loans is half the industry rate, he said. Banks’ commentary on repurchase demands “implies that the put-back problem has moderated so far in 2011,” wrote the analyst, who has a “buy” recommendation on Capital One’s shares. The bank had $816 million in reserves to cover representations and warranties on mortgages as of Dec. 31, according to a regulatory filing.
JPMorgan Chase & Co. and Wells Fargo & Co. were among banks that announced $5.94 billion in annualized dividend increases after receiving results last week from Federal Reserve stress tests. Capital One said March 18 that it would leave its first-quarter dividend unchanged at 5 cents, and didn’t say whether the Fed objected to its proposed capital plan.
“As a matter of policy, we do not disclose supervisory conversations or the nature of these supervisory interactions,” Tatiana Stead, a company spokeswoman, said in an e-mail today.
“We continue to expect that strong capital levels, a business model with proven resilience, and strong capital generation will support growth, provide appropriate resilience to stress, and be available for increased deployment in the interest of shareholders,” she said.
Capital One’s shares gained 9 cents, or 0.2 percent, to $51.50 as of 11:18 a.m. in New York. The stock is up 21 percent this year.