UPDATE 2-Capital One profit surges after acquisitions

Thu Oct 18, 2012 6:28pm EDT

* Q3 EPS $2.01 vs $1.77 year ago

* Q3 rev up 40 percent

* Expects to exceed Basel III Tier 1 ratio target of 8 pct in 2013

* Shares up 2 percent after the bell

By Jochelle Mendonca

Oct 18 (Reuters) - Capital One Financial Corp's quarterly profit rose 44 percent after two big acquisitions, but the lender said increasing competition for automobile and commercial loans may curb future growth.

Capital One's loan book has been boosted by its purchase of online bank ING Direct for nearly $9 billion and its purchase of HSBC Holdings Plc's U.S. credit card portfolio, which added another $30 billion in credit card loans.

Like other banks, auto loans and commercial and industrial lending have helped Capital One offset lackluster consumer loan demand but, as more lenders chase the same customers, underwriting standards have fallen.

McLean, Virginia-based Capital One said new auto loans fell 9 percent from second-quarter levels.

"I think there's more competition which takes a bit off some of the extremely high growth that we've had in the past," CEO Rich Fairbanks said on a post-earnings conference call.

Fairbanks added the company expects to see weak consumer demand for the foreseeable future.

Capital One has spent much of the past decade transforming itself from a specialty credit card issuer dependent on bond market funding into a bank that relies on deposits. With a market value of about $34 billion, it is now a top 10 U.S. bank by deposits.

Net income for the third quarter rose to $1.17 billion, or $2.01 per share, from $813 million, or $1.77 per share, a year earlier.

Revenue rose 40 percent to $5.78 billion.

The company's capital ratios rose as well. Its estimated Basel I Tier 1 common ratio was about 10.7 percent as of Sept. 30, up from 9.9 percent at the end of June.

"Given our strong capital trajectory, we expect to exceed an assumed Basel III Tier 1 common ratio target of 8 percent in 2013," Chief Financial Officer Gary Perlin said in a statement.

The company signaled again that it may return more capital next year to shareholders as a result of the strong growth, if regulators agree.

"With every passing quarter we get more capital and more clarity on what the rules of the game are and that puts us in a position to distribute more of it," Perlin said on the conference call.

The results were a stark contrast to the company's second quarter, when profit fell 90 percent on higher credit loss reserves related to the HSBC card purchase. The lender said then it expected the impact to moderate thereafter.

The company's shares were up 2 percent after the bell. They closed at $57.24 on the New York Stock Exchange on Thursday.

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