Capital One CEO: Mortgage Struggles May Spark Recession


The difficulties that many Americans face in making mortgage payments are unlikely to spread to credit cards, but could help push the economy into recession, the chief of one of the largest card issuers said.

Capital One Financial Chief Executive Richard Fairbank made his comments less than a month after the company said it would close the GreenPoint Mortgage unit it acquired in December, resulting in a loss of 1,900 jobs.

"I don't think there's going to be a lot of direct spillover from mortgage to credit card," Fairbank said at a Lehman Brothers financial services conference.

"The thing we worry about is the direct effect of the mortgage crisis causing a recession," he added. Fairbank nevertheless said McLean, Virginia-based Capital One has strong liquidity and is "in a position to weather" further expected deterioration in credit. Capital One is the largest independent MasterCard and Visa card issuer.

U.S. consumers in July carried $907.4 billion of credit and charge card debt, the Federal Reserve said Monday. Capital One acquired GreenPoint as part of its $13.2 billion purchase of North Fork Bancorp Inc.

It said the closure will result in an $860 million charge, or $2.15 per share, lowering 2007 profit to $5.00 per share.

Earlier Wednesday, Capital One said the loss rate on $44.2 billion of credit-card receivables rose to 3.31 percent in August from 3.23 percent in July, while the delinquency rate rose to 4.06 percent from 3.74 percent.

Goldman Sachs analyst Lori Appelbaum wrote that losses are "tracking slightly below third-quarter expectations; however, given rising delinquencies we are not changing our (loss) provision outlook." She rates Capital One "buy."

Fairbank said Capital One may benefit if the Federal Reserve enacts a widely expected cut in short-term interest rates next week, which should cut many lenders' funding costs.

"The most important impact of lower interest rates on Capital One, by far, will be some relief on the pressures consumers may feel," he said.

Capital One in June announced a separate restructuring expected to cause the loss of 2,000 jobs, but save $700 million by 2009. Fairbank said these savings are "well along their way."

Also Wednesday, Capital One introduced a "Rewards Money Market" account that offers 1 point for every $20 of average monthly balance, including interest. Points are redeemable for airline miles, other goods and cash.

The 4.65 percent yield is below the 5 percent yield on Capital One's standard "high yield" money market account. Capital One shares rose 74 cents to $64.82 in afternoon trading on the New York Stock Exchange. They began the year at $76.82.