Capital One's Profit Beats Estimates

Big Banks Climbing Back to Record Profits

Capital One Financial Corp. and Fifth Third Bancorp led regional bank stocks higher in New York trading after reporting second-quarter profit that beat analysts’ estimates and signaling that credit quality is improving.

The 11 largest regional lenders mirrored the strong results of larger Wall Street firms as most set aside less money in the quarter for soured loans and saw lending margins improve. Provisions for credit losses for the combined group of mid-sized banks dropped 11 percent to $2.8 billion compared with the first three months of the year.

Capital One rose 7.4 percent to $86.98 at 9:56 a.m., the most intraday since October and the best performance in the 24-company KBW Bank Index, which gained 0.3 percent. The McLean, Virginia-based lender reported Thursday after the close of regular trading that second-quarter revenue topped estimates and provisions fell. Cincinnati-based Fifth Third rose 2.8 percent to $26.19 after posting a 12 percent increase in net income.

“This is the quarter investors have been waiting for – strong top-line, slowing U.S. card provisions,” Ryan Nash, a Goldman Sachs Group Inc. analyst, said Friday in a note to clients regarding Capital One. “We see reasons to remain bullish from here.”

See also: U.S. bank profits near pre-crisis peak despite all the rules

Regional banks have turned to fee-based businesses, such as credit cards and wealth management, to improve earnings. Rising interest rates have also allowed them to charge more for loans, and executives said hikes by the Federal Reserve should help further.

Shares of SunTrust Banks Inc., BB&T Corp., Citizens Financial Group Inc. and KeyCorp also opened higher after exceeding analysts’ expectations on net income. The 10 biggest U.S. banks, including JPMorgan Chase & Co. and Bank of America Corp., together made $30 billion in profit in the three months ended June 30, just short of the record set in the second quarter of 2007.

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