Citing the effects of fewer losses and healthy growth in new accounts and purchase volume, Capital One Financial Corp.’s credit card unit earned $586 million during the fourth quarter ended Dec. 31, up 14.9% from $510 million a year earlier. Revenues were down 13.8%, however, to $2.5 billion from $2.9 billion, driven by a full quarter of lower late fees resulting from implementation of the CARD Act, Cap One reported Jan 20.
The U.S. credit card operation produced income of $499 million, up 8.2% from $461 million, while revenues fell 14%, to $2.22 billion from $2.58 billion. Noninterest income, which includes fees, fell 25.2%, to $594 million from $794 million.
Purchase volume on U.S. credit cards rose 9.8%, to $27 billion from $24.6 billion. The provision for loan losses on U.S. cards fell 51%, to $505 million from $1.03 billion a year earlier because of fewer defaults. The charge-off rate on U.S. credit cards was 7.28%, down 231 basis points from 9.59% a year earlier, while the delinquency rate on accounts at least 30 days past due fell 169 basis points, to 4.09% from 5.78%.
Cap One’s U.S. card unit held $53.8 billion in receivables at the end of December, down 10.8% from $60.3 billion a year ago.
Cap One’s international card operations produced income of $87 million, up 77.6% from $49 million, while revenues fell 6.8%, to $327 million from $351 million. Purchase volume on international cards rose 5.3%, to $2.39 billion from $2.27 billion.
The provision for loan losses on international cards was $84 million, down 50.9% from $171 million. The charge-off rate on international cards was 6.68%, down 284 basis points from 9.52% a year ago, while delinquencies on accounts at least 30 days past due fell 80 basis points, to 5.75% from 6.55%.
Cap One’s international cards unit held $7.52 billion in receivables at the end of December, down 8.5% from $8.22 billion a year earlier.
The company is experiencing strong growth in new-account originations, which have more than doubled from a year earlier as it targets “transactors,” or customers who pay off their bills in full each month, Richard Fairbank, Cap One chairman and CEO, said during a Jan. 20 conference call with analysts.
The transactor market has “amazingly low attrition” along with “wonderful economics,” and the company is investing some $300 million annually in targeting this group through TV advertising, direct mail and online efforts, Gary Perlin, Cap One chief financial officer, told analysts, noting the CARD Act made it more difficult to reprice credit cards for riskier borrowers.
As such, Cap One is pursuing riskier borrowers less aggressively for now because it remains unclear where to price such cards so that they remain profitable in case of another economic downturn, he said.
Cap One also is eyeing new card-partnership deals such as its announcement in August of plans to acquire Kohl’s Corp.’s 20 million private-label credit card accounts, which looks to be a promising investment, Fairbank said (
“Price levels have come down a lot, and we’re selectively going after some of the very best partnerships,” he said, declining to specify what types of operations the company is pursuing.
Asked whether Cap One expects shocks from pending debit interchange price changes, Fairbank said Cap One is “still working on” strategies to cope with the Federal Reserve’s proposed 12-cent cap on debit interchange (
Cap One faces the same effects as other banks from the Fed’s proposed debit interchange reductions, but the bank has a relatively less exposure because of its smaller debit card operations, he said.
The more banks put into the price of using a debit card, “either on a transactional basis or in terms of having one, that actually could create a mix-shift toward credit cards,” Fairbank speculated when asked if the 12-cent cap on debit interchange could drive more payment volume to credit cards.
However, if banks respond by “just making deposit relationships cost more, I’m not sure that the credit card is going to stand to gain that much in all of this,” he added.
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