Credit Commentary

Capital One Posts $276 Million Loss in Second quarter

By Zarana on Sunday, July 26 2009

Capital one reports losses of $275 million reflecting mounting credit losses in consumer lending sections and the company's decision to repay government bailout funds. The second quarter net loss available to common shareholders was $275.5 million, or 65 cents per share, compared with a profit of $452.9 million, or $1.21, a year earlier.

Capital One’s US credit card net income was down by 51% YOY, even though the unit posted a $168.4 million profit in the quarter. The drop is net income over the year was driven by declines purchases and increasing credit losses.

The purchase volume of US credit card portfolio has dropped by 12% YOY, to $24 billion from $27 billion a year ago. On the other hand, the purchase volume has increased by 9% from previous quarter. The 12% YOY drop in sales and 12% YOY decline in credit card volume subsequently decreased the average balances by 5% YOY.

The delinquency rate in the bank's credit card portfolio receded from the first quarter, suggesting that although credit card losses are up, fewer customers are falling behind on payments.  Credit card loans that are at least 30 days late fell to 4.8% of Capital One's U.S. credit card portfolio, compared with 5.1% in the first quarter. US card charge-off rate increased to 9.2% for the second quarter. About 45 basis points of the second quarter charge-off rate resulted from declining balances and about 10 basis points resulted from implementing the OCC minimum payment policies.

The defaults and credit losses were not so bad, actually were in line with the credit card industry results. Moreover, the delinquency seems to be slowing down. In addition, losses to be inching down as well which could be deduced from the Capital One’s decision to cut its provision for future credit card losses to $1.3 billion from $1.5 billion in the first quarter, a 12% decline.