Richard Fairbank and Nigel Morris have worked side by side since Capital One Financial Corp.'s founding as a subsidiary of Signet Bank in 1988.
The partnership produced one of the most powerful financial services stories of the late 1990s, with growth numbers that outdid the brokerages and a stock performance that rivaled even the Internet sector's bubble-fueled gains.
A weakening economy and rising credit losses have made the last few years tougher. And Capital One has had to contend with an insider-trading investigation that led to the departure of its chief financial officer last month.
So it came as a surprise to many when Capital One broke the news Monday that Nigel Morris, 44, would step aside as president and chief operating officer. It means that for the first time, the consumer finance company, with $59 billion in managed loans, will be in the hands of one executive, the 52-year-old Mr. Fairbank.
Mr. Morris is not leaving Capital One. Effective May 1, he will fill the new seat of vice chairman with continued oversight of the McLean, Va., company's international business and risk management activities. But this even means an adjustment at least in how the company is perceived, and some analysts said more dramatic changes might be in order.
"Nigel Morris is one of the shrewdest managers we have ever met," Keefe, Bruyette & Woods Inc. analyst Vincent Daniel said in a report issued Tuesday. "While Capital One contends that the bench is deep enough to mitigate the loss of Mr. Morris, it is extremely difficult for us to believe his departure might not alter the organization."
Mr. Daniel ventured that Capital One should consider putting itself up for sale, mainly because Mr. Morris' move "reduces management's ability to run the company on a stand-alone basis."
Capital One declined to talk about a possible sale. But it has taken steps to shore up its ranks just below the C-suite. On Monday it announced the creation of a 10-member executive committee made of the heads of its separate business lines, including Mr. Morris.
In an interview Monday night, Mr. Fairbank said the committee will be an "opportunity for internal folks who are incredibly talented but less visible to the outside to step into some very big jobs."
Instead of hiring a new president and chief operating officer, Capital One will bring in "two very large players," Mr. Fairbank said. One will be a "Super CFO" who will take on broader responsibility than the job has had up until now, and the second will be a president for the U.S. cards division, which accounts for 70% of Capital One's managed loans.
Still, Bear Stearns analyst David Hochstim said in a research note, "We are a little disappointed that given Capital One's management depth, there is not a person internally suited to running the U.S. card business."
Mr. Fairbank said Capital One is close to filling the CFO vacancy left by David Willey. "Our hope is that this will be a job that goes beyond the classical CFO role in strategy and in really running the company."
David Lawson, the president of the auto finance division, is the interim CFO, and Catherine West, the executive vice president of U.S. consumer operations, is running the U.S. cards business for now.
Mr. Morris, who has four young children, said he will devote more time to his family.
"I have been contemplating this for a number of years," he said in an interview Monday night. "As I got closer to the decision, the issues of last year loomed."
Robert P. Napoli, an analyst at U.S. Bancorp Piper Jaffray, said the announcement "put somewhat of a damper on an otherwise strong earnings release." But "it makes me feel better" that Mr. Morris will remain in charge of the international business and other areas.
Mr. Napoli said the new management structure should satisfy regulators who have complained about a lack of cohesion to Capital One's business units.
"This will help information flow across the organization," he said. "From an overall internal control perspective, it's good thinking."
Lehman Brothers analyst Bruce W. Harting also said the new management setup seems sound. "I've seen it work in other places. It creates more of a bank-like structure."
That observation is consistent with Mr. Fairbank's view. At Monday's conference he told analysts that Capital One "is gradually morphing into a company that is going to look a little bit more like some of the traditional financial institutions that you're more used to looking at."
In an interview, Mr. Fairbank said the company is well rounded, with noncore products, such auto financing, accounting for 30% of its loans. "The day will come when the 'M' word - monoline - is not really used to describe Capital One."
He called Mr. Morris "an extraordinary partner. I don't envision anyone coming in and precisely filling those shoes."
