- The Washington Times - Monday, January 15, 2001

Capital One Financial Corp. has worked its way up, becoming one of the top 10 financial lending institutions in the nation.
The success of the Falls Church-based credit-card issuer reflects in its stock price. Even a customer lawsuit filed against Capital One last week didn't hurt its shares, which closed at $63.56 on the New York Stock Exchange Friday.
"I'm not anticipating that will be a problem," says analyst David West from Davenport & Co. in Richmond, referring to the lawsuit. "Many companies in the industry have had problems over that particular issue at some point."
Capital One customers claim the credit-card issuer charges late fees on timely payments. Lenders CitiGroup and Providian Financial, main competitors of Capital One, had similar suits filed against them during 2000.
Analysts overwhelmingly rate Capital One's stock a buy.
"We picked up coverage in May of last year and the stock is up about 40 percent plus since then," says Joel Gomberg, analyst with William Blair & Co. in Chicago. "The company has continued to generate impressive results."
For its third quarter ended Sept. 30, Capital One reported revenues increased 38 percent to $1.43 billion from $1.03 billion during the same time in 1999.
Income rose 28 percent to $122.12 million (58 cents per diluted share) from $95.36 million (45 cents) the year before. Diluted shares reflect the value of options, warrants and other securities convertible into common stock.
Capital One generates the bulk of its profits by issuing credit cards, but it also makes money through other lending products like auto loans as well as by cross selling services like insurance.
About 12 percent of the company's loans are made abroad, mostly in the United Kingdom and Canada, Mr. Gomberg says.
The strength of the economy has helped Capital One by keeping bankruptcies low for the past two years.
Analyst Michael Hughes from Merrill Lynch in San Francisco said in his last report that bankruptcies in 2000 were 3.9 percent lower than in 1999.
He also wrote: "We continue to forecast bankruptcies to increase modestly, about 10 percent, during 2001 due to the slower economy; However, we remain fairly bullish on the general health of the consumer as long as they remain employed."
Capital One began as a subsidiary of Signet in 1989. Eventually it spun off and went public in 1994, with the stock trading around $14 per share.
The in-depth research it puts into new products has also helped Capital One succeed, analysts say.
"They have prided themselves on doing a lot of testing on their consumer base, trying to see what combination of offers works, where the dangers in terms of extending credit are … they offer credit cards through the whole spectrum of credit quality," says Mr. West. "In time, they'd like to be thought of as an information-based marketing company and present a wide range of products to a substantial customer base."
Mr. Gomberg adds that Capital One's management is also to be congratulated for the company's success.
"It's a very dynamic and innovative management team," he says. "They have done a phenomenal job growing the business and managing the risks involved."


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