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There's Less Momentum In Capital One's Wallet
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The challenges Capital One has been facing include an unfavorable interest rate environment -- squeezing the gap between the rates lenders can pay and the rates they can charge -- and a return to what the company describes as more normal levels of trouble with consumer credit.
The bigger challenge is Fairbank's ongoing campaign to build one of the nation's dominant financial services companies.
Capital One has become one of the largest and most recognized credit card brands through its direct-mail offers and its advertising. Its television spots depict competitors as marauding barbarians and feature the tag line, "What's in your wallet?"
In its rise from obscurity, the company was a pioneer in extending plastic to people other card issuers might have rejected as insufficiently creditworthy. It helped popularize the use of low teaser rates to attract consumers.
The company's blazing growth eventually began to taper off. To keep the company growing and to avoid having all of its eggs in one basket, Fairbank embarked on a diversification plan. Today Capital One makes auto, small-business, installment and home-equity loans.
But the expansion has introduced new risks. The 2006 buyout of North Fork Bancorporation exposed Capital One to the meltdown in the market for unconventional mortgages, such as those made with scarce borrower documentation and no money down. The 2005 purchase of Hibernia Corp., a regional power based in New Orleans, was delayed by Hurricane Katrina.
When the Hibernia deal was announced, Hibernia chief executive J. Herbert Boydstun said in a news release that based on "the complementary nature of our businesses, we expect that there will be minimal disruption for our customers, employees and local communities."
In his letter to employees last week, Fairbank said the cost-cutting will affect each of Capital One's business lines.
"The job eliminations will affect associates who have performed well and have made many valuable contributions to Capital One," he said.
