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Capital One is backpedaling from one of its two big deals last year, dumping a $7 billion credit card portfolio as it struggles to justify the rest of its investment.
February 19 -
Capital One knows how to integrate big bank purchases. But in the era of the Consumer Financial Protection Bureau, it's facing new challenges as it swallows ING Direct and HSBC's credit cards.
October 10
Falling revenue and a shrinking loan portfolio weighed on Capital One Financial's (COF) profits in the first quarter.
The McLean, Va., company said late Thursday that it earned $1.1 billion in the first quarter, up 30% from three months earlier but down 21% from the same period last year. Its earnings per share of $1.79 were 17 cents better than consensus estimates of analysts surveyed by Bloomberg.
Capital One attributed the year-over-year dip to the fact the 2012 results were skewed by a one-time $600 million accounting gain.
Its earnings in the first three months of this year were helped by a $261 million allowance release. The company attributed that release in large part to the better-than-anticipated credit performance of its domestic credit card portfolio.
The company's total net revenue for the quarter was $5.6 billion, which was down 1% from the fourth quarter. The decline was due principally to lower average loan balances and purchase volumes, according to the firm's press release.
Capital One's domestic credit card period-end loans fell by 15% from the fourth quarter, due partially to seasonally lower balances and purchase volumes, the company stated. Another factor was the
Capital One also said that it recorded a $107 million provision related to mortgage representations and warranties in the first quarter. That represented an upward revision of the firm's assessment of its probable losses as a result of private-label mortgage litigation.
Meanwhile, Capital One benefited from a falling cost of funds — from 0.99% in the fourth quarter of last year to 0.83% in the first three months of this year.
The company's bottom line was also aided by a decline in noninterest expenses. That number dropped to $3 billion, a 7% decrease from the fourth quarter, due in part to reduced marketing expenses.
