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ING Acquisition, Auto Lending Boost Earnings for Cap One

May 03, 2012

CHICAGO — Boosted by the recently closed acquisition of ING Direct, Capital One Financial’s earnings increased from $407 million in the end-of-year 2011 quarter to $868 million, but fell from $1 billion in the year-ago period.

The biggest driver of COF's earnings was largely due to higher revenue, both including the ING Direct acquisition and from growth in the company's legacy businesses, Fitch reported. Overall revenue expanded 22 percent from the sequential quarter due to $40.4 billion of loans attributable to the ING Direct acquisition.

Excluding the completed acquisition, COF's total revenue from its legacy portfolio grew 5.2 percent from the sequential quarter thanks to strong growth in auto loans as well as strong auto finance originations during the quarter. Fitch notes that auto lending continues to be a strong area of growth for COF.

While these results were generally positive, Fitch noted that COF continues to increase its reserve for mortgage representation and warranty claims. The company provisioned an additional $169 million for these claims in the first quarter, which brought the total reserve to $1.1 billion. Fitch expects this to continue to be a drag on earnings in 2012.

Fitch also noted that COF's credit quality metrics continue to be good. Overall net charge-offs (NCOs) during the quarter were 2.04 percent, down from 2.69% in the fourth quarter 2011. Additionally, 30-plus day delinquency rates declined in both the card and consumer banking segments.

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