Credit Commentary

Capital one’s Credit Losses continue to mount

By Zarana on Monday, August 24 2009

Capital One Financial Corp. (COF) continued to face rising charge-offs and delinquencies in July on managed basis, as Americans continued to lose jobs and struggled to pay their debts. The credit-card lender turned bank has been struggling with increasing credit woes in recent months and has seen the economic slump threaten its balance sheet, leading it to slash its dividend earlier this year.

In a regulatory filing with the Securities and Exchange Commission, Capital One released data that showed managed 30-day delinquencies, on a weighted average across its national lending business, increased in July from June. Meanwhile, the weighted average for national lending managed charge-offs also climbed from June.

The 30-day delinquency rate in its U.S. card segment rose to 4.83% as of July 31, from 4.77% as of June 30, while auto-finance delinquency rate increased to 9.22% from 8.89% and international delinquency rate slipped to 6.68% from 6.69%.

Meanwhile, the managed charge-offs for U.S. cards rose to 9.83% from 9.73%, while they grew to 4.26% from 3.89% for auto finance and jumped to 9.76% from 9.26% in the international segment. While on the other hand, the securitized charge-off rate for U.S. cards has inched down to 10.7% in July from 11% in June.

Capital One's credit-quality report shows normal seasonality in delinquencies and a significantly moderating pace of growth in credit losses.

The credit card giant Capital One Financial has traditionally made good money in fees from customers who pay late but ultimately pay up and others who rack up charges and surpass their credit limits. Many have witnessed the financial turmoil and threats of layoffs and taken a more disciplined view of their finances, making sure to submit payments on time and adhere to limits.

Like most large financial institutions, Capital One has been rattled by skyrocketing unemployment, loan losses and general economic contraction in the last 1½ years.