- The Washington Times - Tuesday, April 21, 2009

CHARLOTTE, N.C. (AP) - Capital One Financial Corp. reported a $176.1 million first-quarter loss Tuesday, citing escalating credit losses and setting aside more money for bad loans.

The bank and credit card company also said it expects managed charge-off dollars, a measure of losses in all of its businesses, in 2009 will be higher than the $8.6 billion it previously projected.

Its shares dropped $1.15, or 7.6 percent, to $13.90 in after-hours trading. They had risen 12.5 percent, or $1.67, to close Tuesday’s regular session at $15.05 before the earnings report.

The McLean, Va.-based company posted a quarterly loss of $176.1 million, or 45 cents per share. That compares with earnings of $548.5 million, or $1.47 per share, a year earlier.

Excluding discontinued operations, the company reported a loss of $86.9 million, or 39 cents per share, compared with a profit of $632.6 million, or $1.70 per share.

Analysts polled by Thomson Reuters, on average, expected a loss of 8 cents per share. Analyst estimates typically exclude one-time, unusual charges.

Total revenue fell 26 percent to $2.88 billion from $3.87 billion. Analysts expected revenue of $4.17 billion.

Chairman and Chief Executive Richard Fairbank said the results reflect significant pressures from the worsening economy.

“First quarter and near-term results remain under significant pressure at this point in the cycle,” Fairbank said on a conference call with analysts. “We continue to make tough decisions and take the actions that we believe will put our company in the best possible position to weather the storm and create shareholder value over the cycle.”

Several financial companies have reported losses or big profit declines in the first quarter, reflecting sharp increases in soured consumer and commercial loans as the economy deteriorates.

“Capital One’s earnings announcement shows that the recent run of positive earnings from other financial-service players should not be misinterpreted as the end Wall Street’s financial woes,” said Celent senior analyst Red Gillen. “From a consumer credit perspective, the biggest sources of losses are charge-offs which, in turn, are largely driven by unemployment.”

Default rates for credit cards usually track the jobless rate during tough economic times. The government reported earlier this month that the unemployment rate shot up to 8.5 percent in March, a 25-year high. Nearly all lenders, including Bank of America Corp., JPMorgan Chase & Co. and Discover Financial Services, are seeing more customers stop making monthly payments.

Capital One’s U.S. card business, which is known for its “What’s in Your Wallet” advertising campaign, reported net income of $2.4 million in the first quarter, a 99.5 percent decrease, year over year. The charge-off rate, or loans the company considers won’t be repaid, rose to 8.4 percent, worse than the company’s January prediction for 8.1 percent. That was up from 5.85 percent from a year earlier. Delinquencies rose to 5.08 percent from 4.04 percent.

Net chargeoffs at the company grew to $1.1 billion from $767 million in the first quarter of 2008. The rate of chargeoffs to total loans jumped to 4.41 percent from 3.07 percent. The rate of loans delinquent by 30 days or more to total loans also grew, rising to 3.99 percent from 3.26 percent.

Capital One said it added $124.1 million to its allowance for loan losses, anticipating a further deterioration of its credit portfolio that is under pressure as unemployment rises.

The total allowance for loan losses now stands at $4.6 billion.

Meanwhile, the company reported strong deposit growth during the quarter. Total deposits increased to $121.1 billion from $87.69 billion at the end of the prior-year quarter. In December, Capital One announced plans to buy Bethesda, Md.-based Chevy Chase bank for $520 million in cash and stock. The deal, which closed in the first quarter, added $14 billion in deposits, as well as branches in Maryland, Virginia and Washington, D.C.

Capital One’s auto finance business reported net income for the quarter of $71.4 million, compared to a loss of $82.4 million in the year-ago period.

In its international business, Capital One’s Canadian credit card unit began to show signs of weakness. Net income in the unit fell nearly 94 percent to $2 million, due to increasing economic deterioration in the U.K. and Canada, the company said.

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