Capital One's shares fall 3.2 percent after earnings

NEW YORK (Reuters) - Capital One Financial Corp's (COF.N) shares fell 3.2 percent on Friday, after investors shrugged off the bank's stronger-than-expected earnings report and focused on its lack of revenue growth.

Capital One executives said late Thursday that its lending business was shrinking and they do not expect consumers to boost their borrowing until at least next year.

"Part of owning the stock right now is hoping that credit would start to grow again," said James Ellman, president at hedge fund Seacliff Capital. Investors are "hoping for some growth and they're getting shrinkage."

Capital One Chief Executive Richard Fairbank also said the bank is looking at acquisitions, either to buy portfolios of assets, lending platforms, or entire banks.

Investors are concerned that Capital One will turn to acquisitions to bulk up its balance sheet as it deals with weak loan demand, Ellman said. Acquisitions often push a company's share price lower.

Late Thursday, Capital One posted second-quarter profit of $608 million, or $1.33 a share, beating analysts' average forecast of 88 cents a share, according to Reuters Estimates.

The company beat expectations largely because it set side far less money to cover bad loans, as credit quality improved. But investors and analysts have seen similar trends at most credit card lenders this year.

Now they are looking for growth strategies, and Capital One fell short. Revenue fell 9 percent from the previous quarter, to $3.9 billion, as the company's average loan balance shrank 4.5 percent.

Capital One reported earnings on the same day as American Express Co (AXP.N), which also cited weak loan demand. But American Express is changing its strategy to focus less on lending and more on processing the transactions of wealthy customers, who spend a lot on their cards but also pay their bills in full every month.

"When you compare and contrast the two, it seems like they were headed in two different directions and that's contributing to the weakness" in Capital One's shares, said Sanjay Sakhrani, analyst at Keefe, Bruyette & Woods. "Unfortunately for Capital One, their model is more lend-centric, whereas for American Express it's more spend-centric."

"I think there's still a level of hope out there for Capital One in terms of them being able to grow ... but I think it'll take a little longer to materialize," Sakhrani said.

Capital One did not immediately respond to requests for comment.

(Reporting by Maria Aspan, editing by Matthew Lewis)