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Capital One Profit Surges as Credit-Card Write-Offs Drop

Capital One Financial Corp. CEO Richard Fairbank
Capital One Financial Corp. Chief Executive Officer Richard Fairbank. Source: Capital One Financial Corp. via Bloomberg

April 21 (Bloomberg) -- Capital One Financial Corp., the top performer this year in the KBW Bank Index, said first-quarter profit surged 60 percent as fewer credit-card borrowers defaulted. The firm rose in New York trading.

Net income climbed to $1.02 billion, or $2.21 a share, from $636.3 million, or $1.40, in the same period a year earlier, the McLean, Virginia-based company said today in a statement. Results exceeded the $1.54-a-share average estimate of 22 analysts surveyed by Bloomberg. Loan-loss provisions fell 64 percent to $534 million as charge-offs declined, the firm said.

Chief Executive Officer Richard D. Fairbank, 60, has been pulling funds from reserves set aside to cover soured loans as defaults have fallen amid U.S. job growth. Capital One’s U.S. credit-card write-offs for loans deemed uncollectible declined to 5.87 percent in March, the lowest in more than two years, after peaking at almost 11 percent a year earlier.

“We are gaining momentum across our businesses, and the period of shrinking loans through the Great Recession came to an end in the first quarter,” Fairbank said in the statement.

Capital One rose $1.48, or 2.9 percent, to $52.01 at 9:38 a.m. in New York Stock Exchange composite trading. The shares have gained 19 percent this year through yesterday, compared with the 3.7 percent decline of the 24-company KBW Bank Index.

The firm plans on deploying capital through takeovers, growth and returning it to investors, Fairbank said today during a conference call.

‘Returning Capital’

“Returning capital to our shareholders is an increasingly important part of how we deliver value,” he said.

Capital One said March 18 that it expects to leave its first-quarter dividend at 5 cents while banks including JPMorgan Chase & Co. and Wells Fargo & Co. announced $5.94 billion in annualized dividend increases. The Federal Reserve reviewed the ability of the 19 largest U.S. banks to weather another recession and approved some banks’ plans to boost payouts.

Capital One didn’t say whether the Fed objected to its capital plan. The Fed may have rejected a proposed increase because of concern that it will incur more costs linked to bad loans, Brian Foran, a Nomura Securities International Inc. analyst, said in a March 24 note to clients.

Revenue rose 3 percent to $4.1 billion from the fourth quarter and fell about 5 percent from a year earlier on lower non-interest income, Capital One said. Net interest income declined about 2.7 percent from the year-earlier period to $3.14 billion.

Bank of America Corp., the largest U.S. lender by assets, said first-quarter profit in its card division surged 78 percent to $1.71 billion. The Charlotte, North Carolina-based bank said this month that it reduced the amount set aside to cover soured credit-card loans by $2.6 billion in the first quarter, compared with the same period a year earlier, as write-offs and delinquencies declined.

American Express Co., the world’s biggest credit-card issuer by purchases, said yesterday that first-quarter profit rose 33 percent to $1.18 billion as it slashed the funds set aside to cover bad loans.

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

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

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