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Auto Gains, But Charge-Offs Mount for Capital One

July 28, 2009

Despite its auto finance unit’s profit nearly tripling, mounting charge-offs led Capital One Financial Corp. to report a second-quarter loss of $275.5 million.

The McLean, Va.-based company said it earned $224.2 million during the quarter, excluding the $461.7 million it paid to redeem preferred shares the government had purchased as part of the Troubled Asset Relief Program (TARP). Revenue fell to $3.18 billion from $3.35 billion last year.

And despite reporting improvements in delinquencies, Capital One’s second quarter results were dragged down by rising defaults.

The company’s managed net charge-off rate for its National Lending segment – which includes the company’s US Card, Auto Finance and International Lending business units – increased by 49 basis points during the quarter to 9.04 percent.

And while the US Card and International Lending divisions reported increases in charge-offs of 84 and 202 basis points, respectively, the Auto Finance division realized a decline of 123 basis points during the quarter.

The delinquency rate for the National Lending segment also increased 12 basis points to 5.82 percent from the first to second quarter. The delinquency rate for the auto segment increased 137 basis points to 8.89 percent. However, the rate continued to improve from a high of 9.91 percent during the fourth quarter 2008.

The auto unit also reported that profit increased from $71.4 million in the first quarter to $97.2 million during the recent quarter. Loan originations, however, decreased by 26,000 during the quarter, or by $122 million.

“Performance in the National Lending segment primarily reflects expected continued economic deterioration during the second quarter, although the pace of deterioration was partially offset by seasonal benefits and the company’s ongoing efforts to aggressively manage credit risk,” officials said.

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