Capital One to Cut 2,000 Employees to Reduce Costs
Capital One said it expects to eliminate about 2,000 jobs, or a little more than 6% of its work force, throughout the company as part of a cost-cutting program designed to save $700 million by 2009.
The McLean, Va.-based credit card and banking company expects to incur $300 million of pre-tax charges for the restructuring, including $90 million this quarter and $200 million in 2007.
These charges are expected to reduce after-tax profit by 15 cents per share this quarter, and 33 cents per share in 2007.
Approximately half of the planned job eliminations have already occurred, and the affected employees have been notified, the company said. Other cuts will come through attrition and the elimination of selected positions that are currently vacant by the end of next year.
Capital One currently has about 32,000 employees.
The company said it expects the change to help it achieve about $400 million of pre-tax savings in 2008, and another $300 million in 2009.
"Improved operating efficiency will help us drive sustained earnings growth, especially as we navigate the current interest rate cycle and normalizing consumer credit trends," said Richard D. Fairbank, chairman and chief executive, in a statement.
The cuts follow an expense review that Fairbank said he ordered several months ago.
In 1995, Capital One was primarily a credit-card issuer with 5 million accounts. In the decade since, it has evolved into a robust and broadly diversified Fortune 200 company with over 50 million customer accounts worldwide and one of the most recognized brands in America. The company's U.S. credit card business is widely known for its "What's in Your Wallet" advertising campaign.
The company recently acquired a pair of traditional banks in a bid to diversify its operations.
In November 2005, Capital One bought New Orleans-based Hibernia, which had branches in Texas and Louisiana, for $4.9 billion. In December, the company completed its $13.2 billion acquisition of North Fork Bank, which operates banks in New York, New Jersey and Connecticut.
"The competition is fierce and our competitors are not sitting still," Fairbank wrote in a memo sent Wednesday to Capital One employees. "To win in each of our businesses, we must create a sustainable cost discipline and reinvent our processes to enhance efficiency and drive innovation and speed to market."