Capital One Earnings Sink On Mortgage Weakness; Guidance Also Cut

Capital One Financial said on Thursday first-quarter profit fell 24%, and cut its full-year earnings forecast, citing mortgage banking weakness, sending shares down more than 4% after hours.

Net income for the fourth-largest MasterCard and Visa card issuer fell to $675.1 million, or $1.62 a share, from $883.3 million, or $2.86, a year earlier.

Capital One projects 2007 profit at $7 to $7.40 a share, down from the range of $7.40 to $7.80 it forecast in January.

Nearly five months ago, Capital One completed its $13.2 billion takeover of Melville, New York's North Fork Bancorp, adding more than 350 branches and a large mortgage business. A year earlier, it bought Hibernia for $5 billion, adding more than 300 branches in hurricane-ravaged Louisiana and Texas.

Chief Financial Officer Gary Perlin said mortgage banking posted a "modest" loss in the first quarter amid "unusually weak conditions" in the market to sell some nonconforming loans, including "Alt-A" loans -- or "Alternative-A" loans, which often go to borrowers who cannot provide full documentation of income or assets.

"Assuming no improvement ... we expect that reduced volumes and margins would result in our mortgage banking business delivering no incremental earnings for the balance of 2007," Perlin said.

Capital One's larger card rivals include Bank of America, Citigroup and JPMorgan Chase.