Capital One Slashes Profit Forecast on Loan Losses
NEW YORK (Reuters) - Capital One Financial Corp (COF.N), the largest independent U.S. credit card issuer, cut its full-year profit forecast by 21 percent on Thursday, citing mounting consumer loan losses and higher legal reserves.
The lowered forecast shows how credit problems have widened beyond the nation's housing market to affect other forms of consumer debt, including credit cards and auto loans.
Shares of Capital One fell as much as 10 percent to their lowest level in nearly five years. They recovered some losses after Federal Reserve Chairman Ben Bernanke said the central bank was ready to act aggressively to bolster the economy.
Capital One now expects 2007 profit of $3.97 per share, down from its prior forecast of about $5.00.
It is the third time in nine months that the McLean, Virginia-based credit card and banking company has cut its forecast.
Capital One also said it expects fourth-quarter profit of 60 cents per share, and 85 cents excluding a charge tied to GreenPoint Mortgage, a unit it closed in August. Net income was $390.7 million, or $1.14 per share, in the fourth quarter of 2006.
Analysts, on average, expected profit per share of $1.51 for the fourth quarter and $4.98 for the year, according to Reuters Estimates.
"It largely reflects what's happening in the economy," Curt Beaudouin, senior analyst at Moody's Investors Service, said in an interview. "There has been a gradual increase in bankruptcy filings, and knock-on effects on credit card asset quality from particularly troubled housing markets."
The housing slump, high oil prices, tighter credit and rising unemployment are making it harder for consumers to pay their bills.
Analysts expect earnings to fall at most major U.S. financial companies when they report fourth-quarter results this month.
Capital One set aside $1.9 billion for bad loans in the fourth quarter, citing higher losses on U.S. credit card and auto loans and deterioration in $700 million of home equity lines of credit from GreenPoint that it still owns.
The company boosted its forecast for full-year charge-offs to $5.9 billion from a range of $4.9 billion to $5.5 billion.
It is also taking $140 million of charges for litigation involving the Visa credit card network, to which it belongs.
SHARES FALL
Capital One shares were down $1.60, or 3.7 percent, to $41.75 in afternoon trading on the New York Stock Exchange. They earlier fell to $38.92, their lowest level since April 2003. Continued...
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