UPDATE: Capital One Gets Approval to Buy Back $1 Billion in Shares

--Share repurchase hinge on sale of Best Buy credit card portfolio

--Level of buybacks more than expected, KBW says

--Buybacks to be completed on March 31, 2014

(Adds analyst comment in fifth paragraph and background comments from CEO Richard Fairbank in seventh paragraph.)

   By Matthias Rieker and Billy Crosby 
 

Capital One Financial Corp. (COF) received Federal Reserve approval to repurchase up to $1 billion of its shares, a move that comes just months after the bank boosted its dividend for the first time since the financial crisis.

The bank is expected to start buying the shares later this year and complete the buyback by March 31, 2014.

Capital One said the Fed made the buybacks contingent on the completion of the sale of its Best Buy Co. (BBY)-branded credit card portfolio to Citigroup Inc. (C), which is expected to close in the third quarter.

Shares of Capital One rose 1.2% in morning trading to $64.09. The stock is up 10% so far this year.

The buyback was $200 million more than Keefe, Bruyette & Woods Inc. analyst Sanjay Sakhrani expected, he wrote in a research note. The buybacks "hopefully convince investors that management is serious about capital return being a large part of the story."

Mr. Sakhrani said if Capital One were to buyback all $1 billion worth of shares this year, it would add a penny to 2013 earnings per share and 4 cents to next year's earnings. According to Thomson Reuters, analysts expect Capital One to earn $6.59 this year and $6.66 next year.

Chairman and Chief Executive Richard Fairbank has told shareholders repeatedly in recent months that the bank would ask the Fed for a share buyback in addition to the dividend increase.

As part of the Fed's annual stress test for large banks, Capital One received Fed approval in March to sharply increase its dividend to 30 cents a share from 5 cents.

Capital One had traditionally focused more on share buybacks than on dividends, but shifted that strategy with a more substantial dividend after it converted from a pure credit card lender to a bank before the financial crisis.

Capital One had slashed the payout in 2009 as the economic downturn caused borrowers to fall behind on their loan payments, resulting in a wave of losses for Capital One and its competitors.

Write to Matthias Rieker at [e-mail], and Billy Crosby at [e-mail]

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