Capital One Posts $276 Million Loss

Capital One Financial lost $276 million in its second quarter, its results dragged down by continuing credit card losses and the company's move to repay government bailout funds.

Chief executive Richard D. Fairbank told investors and analysts in a conference call Thursday that the McLean company expects worsening unemployment to lead to further losses from delinquent cardholders. The company now forecasts unemployment to rise to 10.3 percent by the end of the year, up from its earlier 9.6 percent prediction.

"We expect continued increases in U.S. card charge-off rates through 2009 as the economy continues to weaken," Fairbank said.

Fairbank added that the company continues "to see consumers behaving defensively in the current economic environment," with many cardholders "working harder to remain current."

Capital One operates one of the nation's largest credit card businesses but has increasingly moved into banking, allowing it to use deposits as a cheap source of capital. The company acquired Chevy Chase Bank in February, creating a retail presence in the Washington area for the first time.

Overall, Capital One's quarterly loss amounts to 65 cents per share. The company posted a profit of $453 million ($1.21 a share) in the second quarter last year.

The company said the loss was largely attributable to its decision last month to repay $3.6 billion in federal aid that it received through the government's Troubled Asset Relief Program. The company recorded a $461.7 million charge in the quarter for the repayment. Excluding that, Capital One would have posted a profit of $224.2 million.

"They did make money, but the loss rate is still rising," said Christopher Whalen, managing director of Institutional Risk Analytics. "It's not a bad report. They are saying the same thing here as other banks, which is that loss rates seem to be slowing down and they're not having to put aside provisions at as high of a rate as they have in the past."

Capital One's U.S. credit card business was down 51 percent compared with the corresponding period a year ago, yet the unit posted a $168 million profit in the quarter. The delinquency rate in the bank's credit card portfolio receded from the first quarter, suggesting that although credit card losses are up, fewer customers are falling behind on payments.

Credit card loans that are at least 30 days late fell to 4.8 percent of Capital One's U.S. credit card portfolio, compared with 5.1 percent in the first quarter. The company said losses in its credit card portfolio reached 9.2 percent, up from 8.4 percent in the first quarter.

Capital One cut its provision for future loan losses to $1.9 billion from $2.1 billion in the first quarter.