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On the Call: Capital One CEO Richard Fairbank

In its third-quarter earnings report, Capital One Financial said that its auto loans business posted sharp annual growth.

The division ended the July-to-September period with $26.4 billion in loans, up from $20.4 billion in the same quarter last year.

But on a conference call with Wall Street analysts, Chairman and CEO Richard Fairbank was asked why the pace of new auto loans slowed sharply from the second quarter.

Fairbank responded that he still feels very confident about the company's auto finance business, but noted that competition for auto loans has intensified.

QUESTION: Is there any more color on the auto finance business' pretty significant slowdown in the originations this quarter? I know you've been talking about it, just give us a more competitive flavor on what's going on in auto.

ANSWER: We continue to have very strong growth in the auto business, but our originations are down off the extremely high level we had, say in the second quarter. So for example, they're down 9 percent.

In the third quarter, they're still at very high levels and are 15 percent higher than the third quarter of 2011.

So let me just describe what's going on. First of all, there continues to be _ although we're getting to the later stages of it _ the strategic growth trajectory we have in Capital One, by the geographical expansion and taking the business strategy that's already been proven, and taking it to more geographies and more dealers.

So that's a very sure-footed thing. At some point over the next couple of years, we'll start to reach the full penetration relative to that.

On the other hand, we are also responding to the competitive marketplace.

There is more intensity in the auto business .... Overall I would say it's still a healthy business. I think some of the pricing has, in the prime space, fallen to pre-recession levels, and subprime is relatively healthy, but it is falling somewhat.

From an underwriting point of view, the thing that's been loosened up is where terms are actually beyond where they were in the boom. In other words, we're talking about the length of the loans themselves, but (loan-to-values) have stayed, have been tightening since 2009.

People got very burned with those, average FICO (credit scores) are still at strong levels, slightly degrading from an industry point of view, but my overall comment would be we still feel very good about the business.

I think there's more competition which takes a bit off some of the extremely high growth that we've had in the past.