Capital One Reports Deeper Loss than Expected
Capital Onereported a loss in its most recent quarter that was much deeper than the one analysts had anticipated as the leading issuer of MasterCard and Visa credit cards was hurt by growing credit losses and higher provisions for bad loans.
Capital one said it lost 39 cents a share in the first quarter, excluding one-time items. Capital One's total managed revenue fell 18.6 percent to $3.7 billion.
Analysts who follow Capital One saw the commercial banking company reporting a loss of 9 cents a share on sales of $4.172 billion, according to a consensus estimate compiled by Thomson Reuters.
In the same period last year, Capital One reported a profit of $1.47 a share and brought in sales of $4.584 billion.
Capital One shares dropped about 7 percent in extended trading Tuesday. The stock leaped 12.48 percent to $15.05 during the regular session on the New York Stock Exchange.
In the U.S. card business, charge-offs—debts the company believes it will never collect—increased to 8.39 percent in the first-quarter from 7.08 percent in the fourth quarter.
"I was expecting a negative number, but not the number they posted. It reflects the economic climate that we are facing right now," said Keith Wirtz, president and chief investment officer of Fifth Third Asset Management.
"It suggests we should brace for more bad news as the year continues in those areas that are consumer sensitive," he added.
Capital One set aside $124.1 million for loan losses, anticipating a further deterioration of its credit portfolio that is under pressure as unemployment rises.
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"Our first quarter results reflected significant pressures from the worsening economy," Capital One's Chairman and Chief Executive Richard Fairbank said in a statement.
McLean, Virginia-based Capital One estimated that managed charge-off losses will be higher than the $8.6 billion estimated for 2009, but declined to give an specific outlook, "given significant uncertainty in the economy."
Last month, the bank cut its quarterly dividend by 87 percent to save $500 million annually—only one year after a 14-fold increase in the payout.
The company once specialized in credit cards but expanded into branch banking in recent years after acquiring Hibernia and North Fork Bancorp. More recently, the February acquisition of Chevy Chase Bank expanded its presence in the affluent suburbs of Washington, D.C.
Capital One, which received $3.55 billion in U.S. taxpayer funds last year, was recently stress-tested to see whether it needed additional capital. The results have not been disclosed, but analysts have estimated the company may need more capital.
The company's shares have dropped about 52 percent this year, more than the 25 percent decline in the KBW Bank Index .