Capital One Forecasts Lower Loan Losses Under Mid-Year Stress Test
By Andrew R. Johnson
Capital One Financial Corp. (COF) said Monday its key capital levels would come in higher during a hypothetical
economic downturn than it previously estimated in March.
The McLean, Va.-based lender, which generates the bulk of its revenue by issuing credit cards, said its Tier 1 common
ratio would fall to a minimum of 9.9% during a nine-quarter period under a mid-year "stress test" Capital One and other
large banks are required to conduct by the Dodd-Frank Act.
In March, it estimated that ratio would fall to a minimum of 9.2% during a slightly different nine-quarter period.
Capital One also said its projected loan losses under the most recent test would total $16.4 billion, down from an
estimate of $17.5 billion in the previous review.
The eighteen banks required to conduct the mid-year Dodd-Frank stress tests this year must disclose their results
between Sept. 15 and Sept. 30.
The Dodd-Frank stress tests are separate from the Federal Reserve's Comprehensive Capital Analysis and Review, or
CCAR, exams, which also aim to gauge large banks' capital strength during a severe downturn. Those tests are used to
determine whether lenders will gain regulatory approval to repurchase stock and pay dividends to shareholders, and
require the banks to maintain a minimum Tier 1 common ratio of at least 5% under their capital plans.
Capital One said Monday that its hypothetical economic scenario assumed that the U.S. unemployment rate would reach a
peak of 12.2% and home prices would decline 25% at their lowest point during the nine-quarter period that lasts through
the second quarter of 2015.
In March, Capital One said the Fed didn't object to its plan of raising its dividend to 30 cents from 5 cents, its
first dividend increase since slashing the amount in 2009 amid rising loan losses.
More recently, the bank said it would soon begin buying back shares under a $1 billion repurchase program after
selling a portfolio of Best Buy Co. Inc. (BBY) credit-card loans to Citigroup Inc. (C).
Capital One's shares were up 1.1% at $68.58 in recent trading.
Citi, KeyCorp (KEY) and Goldman Sachs Group Inc. (GS) also released the results of their mid-year stress tests on
Monday, projecting higher capital levels than previously estimated in March.
Write to Andrew R. Johnson at firstname.lastname@example.org
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