Capital One Profit Soars

Capital One Financial Corp.'s (COF) second-quarter profit soared from a year earlier as the credit-card lender's provision for credit losses fell and revenue increased slightly.

The lender's results topped analyst expectations.

Most large credit-card issuers have struggled to grow their loan portfolios since the financial crisis as consumers have worked to pay down their debt and avoid carrying balances on their accounts.

American Express Co. (AXP), one of the only lenders experiencing consistent growth, on Wednesday said its second-quarter profit rose 4.9% while spending by its credit-card customers increased 7%.

Capital One boosted the size of its credit-card business significantly last year by acquiring the U.S. credit-card business of HSBC Holdings PLC (HBC, HSBA.LN), which included a private-label platform that issues cards in the names of retailers and other partners like Saks Inc. (SKS), Neiman Marcus Inc. and General Motors Co. (GM).

Capital One also acquired ING Direct, the U.S. online-banking business of ING Groep NV (ING, INGA.AE), in a bid to strengthen its deposit base. The year-ago results included a slew of charges related to its acquisition of HSBC's U.S. credit-card portfolio and a settlement with U.S. regulators. The latest period included a $183 million charge for mortgage representation and warranty expenses.

For the latest period, Capital One reported a profit of $1.1 billion, or $1.87 per share, up from $92 million, or 16 cents a share, a year earlier. Revenue rose 12% to $5.64 billion.

Analysts polled by Thomson Reuters most recently predicted a per-share profit of $1.72 a share and revenue of $5.34 billion.

Capital One has been fighting to show investors its recent deals will be as beneficial as it initially planned after reporting weak fourth-quarter earnings in January and announcing plans to sell a portfolio of Best Buy Co. Inc. (BBY) credit-card loans, which was one of the largest store-card portfolios it gained from the HSBC acquisition.

The planned sale of that business to Citigroup Inc. (C), which is expected to close later this year, sparked concerns that Capital One was struggling to integrate HSBC's massive retail-card platform in to its own business. It also has a large portfolio of mortgages it gained from the ING acquisition that are in run off, constricting Capital One's loan growth.

More recently it has allayed such worries. In April, it reported a better-than-expected first-quarter profit, and said it had begun discussions with the Federal Reserve to use capital it expects to free up by the Best Buy portfolio sale to repurchase shares. Share buybacks would add to Capital One's move to boost its dividend to 30 cents from 5 cents, a decision announced in March in conjunction with the Fed's most recent round of bank "stress tests."

Capital One said its loan quality improved on a quarter-over-quarter basis for the latest period. Its overall delinquency rate was 2.36%, up from 2.06% a year earlier and slightly down from 2.37% in the previous quarter.

Its net charge-off rate was 2.03%, up from 1.53% a year earlier and down from 2.2% in the previous quarter.

The company showed improvement in its net interest margin, which measures how much money it makes on loans to customers. Its net interest margin increased to 6.83% in the second-quarter from 6.04% a year earlier and from 6.71% in the previous quarter.

Its provision for credit losses fell to $762 million from $1.68 billion a year earlier.

Capital One's shares were up 1.4% to $68 after hours. The shares were up more than 27% over the past three months through the close.

-Write to Nathalie Tadena at [e-mail]

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