TEXT-S&P: Capital One Financial unaffected by results
Oct 19 - Standard & Poor's Ratings Services today said the ratings and outlook on Capital One Financial Corp. (COF; BBB/Negative/--) are unchanged following our review of the company's good third-quarter 2012 earnings, which were within our expectations. The company posted pretax earnings of $1.72 billion, up from $236 million in the previous quarter and $1.24 billion in third-quarter 2011. Total net revenue rose 14.4% from the second quarter and 39.2% year over year, reflecting the full quarter's impact of the HSBC U.S. credit card acquisition. The higher-yielding HSBC card assets also pushed the net interest margin higher, by 93 bps to 6.97%. Average loans, excluding acquired loans, increased $12 billion to $163 billion, led by growth in the domestic credit card business. Net charge-offs (NCOs) increased 20.2% from the second quarter because of a lower proportion of charge-offs on HSBC U.S. credit card loans that were absorbed by the credit mark compared with the previous quarter, seasonally higher charge-offs in automobiles, and the impact of newly issued regulatory guidance related to the treatment of consumer loans in cases where the borrower has gone through Chapter 7 bankruptcy. NCOs were 1.75% for the third quarter, compared with 1.53% in the second quarter and 2.52% in third-quarter 2011. COF added $127 million in reserves, compared with an addition of $938 million last quarter as the company continued to build its allowance toward the recently acquired HSBC loans. Early delinquencies (30 days past due) for the card business, excluding acquired loans, increased 68 basis points to 3.67%. The coverage ratio of allowance to loans rose 7 bps to 2.54% because of the reserve build-up. Per the company's guidance, we expect NCOs to increase next quarter as the HSBC U.S. credit mark has largely run its course in terms of absorbing NCOs. COF's Basel I Tier 1 common ratio was 10.7% at the end of the third quarter, up 80 bps from the previous quarter, reflecting stronger revenue generation following the HSBC Card acquisition. Our outlook on COF is negative, reflecting the potential for an increase in loan losses stemming from the company's higher concentration in credit cards and mortgages following its acquisitions of ING Direct and HSBC's U.S. credit card portfolio. The negative outlook also reflects the integration risk associated with these two acquisitions, which have now been closed. In addition, we will monitor the impact on capital ratios of COF's total payout ratio (dividends and buybacks) and the company's plans to retire hybrid capital. Standard & Poor's, a part of The McGraw-Hill Companies (NYSE:MHP), is the world's foremost provider of credit ratings. With offices in 23 countries, Standard & Poor's is an important part of the world's financial infrastructure and has played a leading role for 150 years in providing investors with information and independent benchmarks for their investment and financial decisions.
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