- The Washington Times - Tuesday, July 23, 2002

Analysts expect Capital One Financial Corp. to rebound and continue to prosper despite the beating its stock endured last week.
Last Wednesday, the Falls Church company's stock plummeted nearly 40 percent after Capital One announced it, and its subsidiaries Capital One Bank and Capital One FSB, had entered into an agreement with federal regulators to boost bad-loan reserves for those considered high risk and to improve its internal controls.
But the company said its earnings have increased since the first quarter of 2002 and, given the agreement, the growth is expected to continue.
"Capital One's earnings power allowed us to increase our 2002 earnings-per-share growth target to 30 percent," Richard Fairbank, Capital One's chairman and chief executive officer, said in a press release.
Mr. Fairbank believes the agreement with the regulators following a routine regulatory review will only strengthen its balance sheet, and the loss allowances will make the company stronger.
Capital One's earnings for the second quarter were $213.1 million, or 92 cents per share, compared to $155.3 million, or 70 cents per share, for the same period last year. The earnings in the first quarter of 2002 were $188.0 million, or 83 cents per share.
The company's stock fell $20.10 last Wednesday to close at $30.48, and lost $4 billion in market value after investors heard the news about the agreement with regulators.
Michael T. Vinciquerra, an analyst at Raymond James, believes the company will bounce back after the major stock drop last Wednesday.
"It seems to us that they have really met all of the requirements of the regulators," Mr. Vinciquerra said. "Overall, things seem to be going very well fundamentally for the company."
Shares of Capital One fell $1.11 yesterday to close at $34.10.
"The investor reaction on Wednesday morning was certainly justified," Mr. Vinciquerra said. "We didn't expect to see regulators involved with this company. In the end, we don't expect the stock to return to the highs anytime soon."
Last Tuesday, the company announced a 20th consecutive quarter of record earnings, driven by a 42 percent year-over-year increase in total revenues. Capital One also raised its target for earnings-per-share growth for 2002 to 30 percent, up from the previous estimate of 20 percent.
"Revenue grew at a 42 percent annualized rate in the second quarter, a testament to the power of our information-based strategy to identify and meet customer needs," Nigel Morris, Capital One's president and chief operating officer, said in a press release. "I'm equally pleased that once again our credit-risk management practices enabled us to achieve strong credit performance for the quarter."
While Capital One's stock is not likely to return to the highs it once had, analysts expect it to continue to improve. Mr. Vinciquerra believes the company's balance will help them overcome the drop in stock prices.
"They've been performing very well," Mr. Vinciquerra said. "We think Capital One will definitely be a survivor and a leader in the industry."
Capital One's second-quarter revenue rose to $2.3 billion, compared to $2.1 billion in the first quarter of this year. The company also added 2 million net new accounts, bringing total accounts to 48.6 million.

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