Jan 18 - Standard & Poor's Ratings Services today said its ratings and outlook on Capital One Financial Corp. (COF; BBB/Negative/--) are unaffected by the company's fair fourth-quarter results, which were slightly below our expectations, given the current operating conditions. The company posted pretax earnings of $1.2 billion, compared with $1.7 billion in the previous quarter and $571 million in fourth-quarter 2011. Fourth-quarter earnings reflected lower net interest income, primarily stemming from lower card revenues as a result of purchase accounting and seasonality trends, higher provisions in the domestic card business, seasonally higher marketing costs, and integration expenses related to the HSBC and ING Direct acquisitions. We expect the amortization of intangibles ($2.1 billion of purchased credit card relationships) as well as transaction and merger-related expenses could hurt earnings over the next several years, albeit at modestly declining levels. The net interest margin (NIM) contracted 45 basis points (bps) versus the third quarter to 6.52%, largely because of lower card revenues and a higher proportion of low-yielding cash and securities balances. We expect the NIM to remain relatively stable in 2013 as the declining cost of funds should offset pressure on asset yields. Net charge-offs increased 51 bps to 2.26%, largely because of a higher domestic card loss rate, which reflected lower absorption of charge-offs by the HSBC U.S. purchase accounting mark. Excluding the acquired loans, average loans increased by $2.3 billion to $165 billion, led by seasonally higher domestic credit card loans and higher commercial and auto loans. We expect average loan volumes to decline in 2013 as continuing run-off of the HSBC U.S. portfolio offsets organic card growth. COF's Tier 1 common ratio was 11% at the end of the fourth quarter, up 30 bps from the previous quarter. COF's risk-adjusted capital (RAC) ratio, based on our measurement, was 7.5% as of September 2012. We forecast that the RAC ratio will improve but remain within the "adequate" range of 7%-10% (as our criteria define it) over the next 12-18 months, largely reflecting earnings retention. Although COF did not request share repurchases in its 2013 Federal Reserve Comprehensive Capital Analysis and Review submission, the company is targeting a return to a higher dividend. 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, as well as elevated integration risk associated with its acquisitions of ING Direct and HSBC U.S.'s card portfolio. In addition, we will continue to monitor Capital One's capital distribution plans.