--Profit declined 6.3% as revenue fell and operating expenses rose
--Results beat analysts' estimates, sending shares up 1.9% after hours
--Company set aside $101 million for card litigation
(Updated with CEO comments in paragraph 12 and details about expenses in paragraph 15.)
By John Kell and Andrew R. Johnson
Capital One Financial Corp.'s ( COF ) third-quarter profit slid 6.3% as lower revenue and higher operating expenses more
than offset a decline in provision for credit losses.
But the results from the McLean, Va.-based bank topped Wall Street's expectations, sending shares up 1.9% at $73.50 in
For the latest period, Capital One reported a profit of $1.1 billion, or $1.86 a share, down from $1.2 billion, or $
2.01 a share, a year earlier. Revenue fell 2.3% to $5.65 billion.
Analysts surveyed by Thomson Reuters expected a profit of $1.80 a share on $5.58 billion in revenue.
As one of the country's largest credit-card lenders, Capital One's results are often considered a gauge of consumer
sentiment. More recently the bank's results have been clouded by shrinking loans as it has sold some portfolios.
The credit-card issuer has sought to show investors that recent acquisitions will bolster results.
Last year Capital One bought ING Direct, the U.S. online-banking business of ING Groep NV, in a bid to strengthen its
deposit base. It also acquired the U.S. credit-card business of HSBC Holdings PLC (HBC) last year, making it one of the
largest issuers of private-label credit cards that are offered through retailers and other partners.
While credit-card lending has been Capital One's biggest business, the bank has been pushing to expand its presence in
commercial real-estate and business lending.
In the third quarter, total commercial loans grew 14% from a year earlier to $42.4 billion. At the same time, it's
credit-card portfolio continued to shrink, falling 12% to $78 billion due partly to the sale of a loan portfolio and
run-off of other loans.
Capital One, like other consumer lenders, has struggled to grow loans as customers remain cautious about borrowing. To
boost revenue, the company has been trying to target more customers who use their cards frequently but pay their monthly
bills off in full each month.
While so-called transactors don't earn credit-card lenders the typical interest charges that borrowers who carry
balances on their cards do, they do generate fees that merchants pay banks each time a customer swipes a card. They also
pose less risk to lenders because they typically pay their bills on time.
"New originations are growing and we're seeing more opportunity to increase credit lines for existing customers, which
should improve the trajectory of both loan growth and purchase volume growth over time," Chairman and Chief Executive
Officer Richard Fairbank said during a conference call with analysts on Thursday. While consumers remain "cautious,"
they're "stepping up their spending activity," he added.
Purchases made on its Capital One's credit cards increased 6.1% from a year earlier to $50.9 billion.
American Express Co. (AXP), the world's largest credit-card issuer based on spending, said Wednesday its cardholder
spending rose 7.3% to $236.2 billion.
Noninterest expenses rose 3.3% from a year earlier to $3.1 billion, which was driven partly by legal costs. Chief
Financial Officer Stephen Crawford said during the call that the company that the company reserved $101 million for card
Capital One's overall delinquency rate was 2.54%, unchanged from a year earlier but up from 2.35% in the prior
Its net charge-off rate was 1.92%, up from 1.75% a year earlier but lower than 2.03% in the second quarter.
The company set aside less money to cover bad loans, as its provision for loan losses fell 16% to $849 million from $
1.01 billion last year.
The company's net interest margin, which measures how much money it makes on loans to customers, totaled 6.89% in the
third quarter, compared to 6.97% a year ago and 6.83% in the prior quarter.
Mr. Fairbank is working to boost payouts to shareholders.
Capital One in March announced it was raising its dividend to 30 cents per share from 5 cents after receiving approval
from the Federal Reserve.
It also said it would use capital generated from the sale of a portfolio of Best Buy Co. credit-card loans to
Citigroup Inc. (C) for a $1 billion share buyback program.
The company repurchased $300 million of stock under the program during the quarter, Mr. Crawford said.
Write to John Kell at firstname.lastname@example.org and Andrew R. Johnson at email@example.com
Order free Annual Report for HSBC Holdings Plc
Visit http://djnweurope.ar.wilink.com/?ticker=GB0005405286 or call +44 (0)208 391 6028
Order free Annual Report for Capital One Financial Corp.
Visit http://djnweurope.ar.wilink.com/?ticker=US14040H1059 or call +44 (0)208 391 6028
Order free Annual Report for HSBC Holdings Plc
Visit http://djnweurope.ar.wilink.com/?ticker=US4042804066 or call +44 (0)208 391 6028
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
Copyright (c) 2013 Dow Jones & Company, Inc.