Capital One Swings To 1Q Loss, Raises ’09 Charge-Off View

Capital One Financial Corp. (COF) swung to a first-quarter loss
that, while sharply smaller than the prior period, still showed the
company is experiencing trouble at its banking and credit-card
operations.

The credit-card concern also raised its projection for managed
charge-off dollars this year, saying they will be higher than the
$8.6 billion previously predicted. It didn’t provide more
specifics, citing “significant uncertainty in the economy.”

Shares fell 6.6% to $14.06 in late trading as the company’s
results were weaker than expected.

Chairman and Chief Executive Richard Fairbank said the results
reflect significant pressures from the worsening economy but also
show strength in the company’s balance sheet. “While we remain
cautious about near-term economic challenges, we are confident that
our balance sheet provides the stability to weather the current
economic crisis and the flexibility to generate value on the other
side,” Fairbank said in a statement.

Capital One posted a net loss of $111.9 million, or 45 cents a
share, compared with prior-year net income of $548.5 million, or
$1.47 a share. The latest quarter’s loss from continuing operations
was 39 cents.

Revenue fell 26% to $2.88 billion.

Analysts polled by Thomson Reuters had been expecting an
eight-cent loss on $4.17 billion in revenue.

Capital One posted a $1.28 billion provision for loan losses,
down from $2.1 billion in the fourth quarter, though up from $1.08
billion a year earlier.

The company’s local banking segment swung to a loss five times
that of the fourth quarter. Its net charge-offs – loans the bank
doesn’t think are collectible – slid to 0.76% of loans from 0.9% in
the prior quarter, though up from 0.31% in the prior year. The
sequential improvement reflected “the fact that the company took
several sizable charge-offs related to specific loans in its
construction portfolio” in the fourth quarter and reduced home
foreclosures.

Nonperforming loans – those seen near default – rose to 1.77% of
loans held for investment, up from 1.25% in the fourth quarter and
0.56% a year earlier.

Net charge-offs in the U.S. card business – which posted net
income of $2.4 million, coming back from a fourth-quarter loss
though sharply down from the prior year’s $491.2 million profit –
rose to 8.4%, worse than the company’s January prediction for 8.1%.
In the prior quarter, the ratio was 7.08%, while it was 5.85% in
the prior year. Capital One didn’t provide a projection for the
ratio for the current quarter, though it said it expects further
increases through 2009.

Delinquencies in the U.S. card segment rose to 5.08%, up from
4.78% in the prior quarter and 4.04% a year earlier. Charge-offs
and delinquencies in the company’s auto finance segment improved
from the fourth quarter but were worse from the prior year, while
charge-offs and delinquencies in the international segment worsened
from both periods.

Capital One’s tangible common equity ratio – reflecting how much
of the bank’s hard assets its common shareholders actually own –
was 4.8% at quarter-end, up from 4.6% at the end of the fourth
quarter.

-By Donna Kardos, Dow Jones Newswires; 201-938-5963;
donna.kardos@dowjones.com