By Dow Jones Business News, March 07, 2013, 08:20:00 PM EDT
By Andrew R. Johnson
Capital One Financial Corp. ( COF ) says its losses on credit-card loans in a severe economic downturn would be lower
than the Federal Reserve's projections under the regulator's most recent round of stress tests.
The Fed on Thursday released its assessment for how 18 large banks would perform under a prolonged period of high
unemployment, sagging home prices and other negative factors. Of those banks, all but one would have enough capital to
keep lending, the Fed found, though banks' own results have showed wide variations in some cases between what they and
the regulator project their capital levels would be.
Capital One, which generates a significant amount of business from credit-card lending, said Thursday its own analysis
showed that losses on such loans would reach $13.5 billion, or a rate of 18%, during the Fed's hypothetical period. The
Fed, on the other hand, said it projected losses of $16.4 billion, or a rate of 22.2%.
Overall, the company said its Tier 1 common ratio--a measure of capital strength--would fall to a minimum level of
9.2% during the downturn, compared with a projection of 7.4% by the Fed. The Fed's minimum requirement is 5%.
In a document posted on its website Thursday, Capital One said its internal calculations are "informed by a number of
factors, including our experience in the 2008 financial crisis and subsequent recession."
It said the largest impact on its income statement under the hypothetical scenario would be the increase to its
provision for loan losses.
The results released by the Fed on Thursday don't include banks' requests to buy back shares or pay dividends. Results
including such requests and the Fed's decisions on those plans are scheduled to be released March 14.
Capital One executives have said they planned to seek approval to pay a "meaningful dividend." It currently pays a 5
cent quarterly dividend, which KBW analyst Sanjay Sakhrani said in a research note he expects will be increased to 18
cents based on Thursday's results.
Write to Andrew R. Johnson at email@example.com
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