Capital One Financial Corp. (COF:US), the worst performer this year in the KBW Bank Index, rose the most among peers in the gauge after posting first-quarter profit that beat analysts’ estimates on improved lending margins.
Capital One rose as much as 6.2 percent in New York trading, the biggest jump since November 2011. The McLean, Virginia-based company yesterday posted net income from continuing operations, which excludes some items, of $1.92 a share, beating the $1.62 average estimate (COF:US) of 27 analysts surveyed by Bloomberg.
Chief Executive Officer Richard Fairbank has spent more than $28 billion on acquisitions since 2005 to build what’s now the eighth-largest U.S. lender by assets. The firm’s recent deals, including last year’s purchase of ING Direct USA, haven’t created the earnings that some analysts and investors expected.
“After a gruesome fourth-quarter report, COF’s first quarter of 2013 was a tad better than we expected and way better than our worst fears,” Chris Kotowski, an analyst at Oppenheimer & Co., wrote in a note today, referring to the firm’s stock ticker. “Knowing they disappointed in 4Q, they set expectations they thought they could beat,” he said of management.
First-quarter net income fell 24 percent to $1.07 billion, or $1.79 a share, from $1.4 billion, or $2.72, a year earlier, which was helped by an accounting gain, the company said yesterday in a statement.
Capital One climbed 6 percent to $55.93 at 12:02 p.m. in New York trading. The shares declined 8.9 percent this year through yesterday, compared with a 5.4 percent gain for the 24- company bank index.
“Each of our businesses delivered solid results in the quarter and our balance sheet (COF:US) is strong,” Fairbank, 62, said in the statement. “We continue to generate significant capital and we’re focused on returning capital to our shareholders.”
Net interest margin, the difference between what banks pay depositors and what’s earned on loans, widened by 0.51 percentage point to 6.71 percent from the first quarter of 2012, according to the statement. Net revenue climbed 12 percent to $5.55 billion from $4.94 billion, matching the average estimate (COF:US) of 17 analysts surveyed by Bloomberg.
The company included $107 million of reserves to cover repurchases of soured mortgages in discontinued operations, according to the statement.
Consumer spending is cooling as the bank struggles to boost lending. Retail sales in the U.S., where Capital One gets more than 90 percent of its revenue (COF:US), dropped in March by the most in nine months. The firm’s U.S. card balances fell to $70.4 billion in March, the third straight monthly decline, regulatory filings show.
In February, the bank said it would sell about $7 billion in Best Buy Co.-branded credit-card loans to Citigroup Inc., jettisoning more than 20 percent of the loans Capital One had purchased (COF:US) last year from London-based HSBC Holdings Plc. Chief Financial Officer Gary Perlin, 61, said in March the loans didn’t meet Capital One’s criteria.
“Despite the fact that the card business is in a slow- growth phase right now, we believe that it will remain the core consumer payment and borrowing mechanism,” Kotowski wrote. “Capital One has a demonstrated ability to manage this business well.”
The firm said in March that the Federal Reserve didn’t object to its 2013 capital plan, which included a proposal to boost the quarterly dividend to 30 cents a share from 5 cents.
American Express Co. (AXP:US), the biggest U.S. credit-card issuer by customer purchases, said April 17 that first-quarter profit climbed 1.9 percent to $1.28 billion as the New York-based lender’s more affluent clients increased spending.
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