There's an off-the-wall reason why Capital One's earnings could take a hit Thursday

  • Capital One reports after the bell Thursday.
  • Morgan Stanley warns second-quarter earnings for the credit card issuer may have been hurt by losses on loans to taxi operators.
  • The value of the taxi medallion loans are falling because of the disruption from Uber and other ride-sharing services.

Capital One Financial is facing an unusual challenge — potentially steep write-offs of loans it made to taxi operators for their medallions.

It is an issue that has already hit New York--based Signature Bank, which wrote down its own medallion loan book 38 percent in the second quarter. Analysts at Morgan Stanley said in a note Wednesday that Capital One could mark down its own loans 40 percent as well, which would shave 33 cents a share off second quarter earnings.

The analysts are quick to point out that they don't know how Capital One's $655 million in taxi medallion loans compare to Signature's, so a write-down might not happen or be as severe.

Medallions, which are issued by the local taxi authority and are required for cabs to operate legally, once sold for more than $1 million in New York. But they are now selling for one-fifth that amount.

A portion of Capital One's loans are to operators in Chicago, the Morgan Stanley analysts note. But much of the exposure is to the New York market, where medallion prices have been hammered by the proliferation of ride-sharing services like Uber, Via and Lyft.

Capital one did not immediately return a call for comment.

The Morgan Stanley analysts said in their note that it is difficult to evaluate the credit condition of Capital One's taxi medallion loans because they are just 1 percent of the company's commercial loans and less than 1 percent of total loans.

Shares of Capital One, one of the biggest U.S. credit card issuers, fell slightly on Wednesday. It is due to report earnings after the bell Thursday.

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