Capital One Stock Suffers
Friday, November 9, 2007
Shares of Capital One Financial have taken a beating this week as analysts cast a more pessimistic eye on the company's outlook for further losses in its lending portfolio.
On Tuesday, the McLean financial services company increased its forecast of the amount of bad loans it may write off next year by several hundred million dollars. The move came as major banks and financial institutions are confronting the fallout from the mortgage industry crisis.
In recent days, Merrill Lynch, Citigroup and Morgan Stanley have announced billions of dollars in additional investment losses from mortgage-backed securities, causing the broader stock market to fall sharply.
Capital One shares fell 16 percent Wednesday -- its biggest, single-day loss in more than a year -- to close at $50.21, down sharply from more than $80 a share in June. The stock tumbled a day after the company warned in a regulatory filing that rising loan delinquencies and housing-market problems could increase its credit losses for 2008.
"Our update view of 2008 charge-offs now ranged from $4.9 billon on the bottom, and up to the mid $5 billions," said Peter Schnall, Capital One's chief risk officer, in the filing with the Securities and Exchange Commission.
Capital One spokeswoman Julie Rakes declined to comment on the stock drop and referred a reporter to the SEC filing.
Some analysts have downgraded the stock in recent weeks, including Gary Townsend of Arlington-based Friedman, Billings, Ramsey, who cut his 12-month target share price for Capital One to $55 from $75.
"The key was the auto loans and credit cards," said Michael Tarsala, an analyst at Thomson Squawk Box, an arm of Thomson Financial. "The worry here is that the problems have gone beyond bad mortgage debt and to credit cards and auto loans. While the loss range ran to $5.5 billion, they left an out that it could get worse in a recession. That's it in a nutshell."
Tarsala said traders continue to bet that Capital One shares will dip below the psychologically important level of $50 in the coming days, which could send the stock down further. The company's shares rebounded yesterday, gaining about 5 percent to close at $52.90.
Capital One has expanded aggressively into banking in recent years. It bought Hibernia National Bank of New Orleans for $4.9 billion in November 2005. Last December, it bought North Fork Bancorporation for $13.2 billion. But the mortgage industry meltdown, prompted by rising defaults in loans to risky borrowers, has hit the company hard.
In August, Capital One announced that it would close its GreenPoint Mortgage subsidiary, which it acquired along with North Fork, eliminating 1,900 jobs. The move came in addition to a $700 million restructuring that eliminated 2,000 jobs, or about 6 percent of Capital One's workforce. The company now employs about 30,000 and has 720 retail bank branches throughout the Northeast, Texas and Louisiana.
In his comments, Schnall said the company, which is the nation's largest independent credit card issuer, has updated its 2008 forecast since its third-quarter earnings call to reflect a worsening in its credit card debt and a prolonging of the housing market downturn.
"We didn't quantify the uncertainty associated with our elevated delinquencies and we didn't quantify the potential if the housing market were to continue to degrade," Schnall said in Tuesday's filing. "Today, we're adding a range to our 2008 charge-off outlook that reflects those two factors."