Friday, October 19, 2007

Capital One Takes A Big Hit

From Reuters

Capital One Financial Corp (NYSE:COF - News), a credit card issuer and banking company, posted a third quarter net loss after taking more than $800 million of charges from shuttering its GreenPoint Mortgage business.

Delinquencies on U.S. credit card loans jumped, and the company's shares declined in thin after-hours trading.

The company is writing off more loans, particularly in its U.S. credit card business, but that is mainly because write-offs had previously been unusually low, CEO Richard Fairbank said on a conference call. Losses are normalizing rather than indicating serious underlying credit trouble, he added.

The company wrote off a total of $1.03 billion of loans on and off its balance sheet, for a managed loan charge-off rate of 2.86 percent, down from 2.92 percent the same quarter last year.

Fairbank said Capital One would likely write down $1.2 billion of loans in the fourth quarter.

Total managed loan write-offs in 2008 are expected to be about $4.9 billion, he said.

The delinquency rate in its U.S. credit card loans jumped to 4.46 percent on a managed basis, from 3.53 percent in the third quarter of 2006. Higher delinquencies typically imply higher write-offs in the future.

The company said that it expects to write off U.S. credit card loans at an annualized 5.25 percent rate in the fourth quarter, compared with a 4.13 percent rate in the third quarter and a 3.39 percent rate in the third quarter of last year.

This is some of the best spin control I have seen yet from the financial companies. Write-offs are obviously increasing, but earnings are "normalizing". That is sheer corporate brilliance.