Capital One Financial Corp. (COF:US), the lender that gets more than half its revenue from credit cards, gained the most since April after posting second-quarter profit that beat analysts’ estimates.
Capital One rose 4 percent to $69.75 at 10:31 a.m. in New York, the best performer in the 81-company Standard & Poor’s 500 Financials Index. The McLean, Virginia-based firm said yesterday that profit from continuing operations, which excludes some items, was $2.07 a share in the quarter, beating the $1.73 average estimate (COF:US) of 28 analysts surveyed by Bloomberg.
Chief Executive Officer Richard Fairbank has spent more than $28 billion on acquisitions since 2005, making Capital One the eighth-biggest U.S. commercial bank at the end of last year. The firm has sought to return more capital to shareholders, announcing this month that it will repurchase as much as $1 billion of stock after completing the sale of a Best Buy Co. credit-card portfolio.
“We expect share buybacks and expense management to offer upside,” Jason Arnold, an analyst at RBC Capital Markets who rates the stock “outperform,” wrote yesterday in a note. “Earnings performance exceeded our expectations.”
The lender acquired (COF:US) the Best Buy assets, comprising private label and co-branded credit cards, from HSBC Holdings Plc last year as part of a deal that added about $30 billion in assets. Capital One also picked up more than $80 billion in deposits last year with the purchase of ING Groep NV’s U.S. online bank.
Net income (COF:US) in the quarter increased to $1.12 billion, or $1.87 a share, from $93 million, or 16 cents, a year earlier, according to the company’s statement. Capital One’s stock climbed 16 percent this year through yesterday, trailing the 26 percent advance for the S&P 500 Financials Index.
Net revenue rose 12 percent to $5.64 billion, beating the $5.52 billion average estimate of analysts in the Bloomberg survey. Net interest margin, the difference between what banks pay depositors and what’s earned on loans, widened by 12 basis points from the first quarter to 6.83 percent.
“Purchase volume was up about 12 percent year-over-year,” Fairbank, 62, said yesterday on a conference call to discuss earnings. “We’re gaining purchase volume share.”
The results included a $119 million loss from discontinued operations that was driven by a $183 million addition to reserves to cover the repurchase of faulty mortgages.
Consumer sentiment improved last month as Americans grew more upbeat about the economy. The Thomson Reuters/University of Michigan index of confidence rose to 84.1 in June from 78.6 at the end of March.
Credit-card write-offs averaged 4.28 percent for Capital One in the second quarter, according to data compiled by Bloomberg. Loans at least 30 days overdue, a signal of future defaults, averaged 3.05 percent, the data show. Both figures were the highest among the six biggest U.S. issuers.
Capital One has sought to cut credit losses by shifting its marketing to attract affluent customers who spend more and pay their balances in full each month. The company employs actor Alec Baldwin to promote its Venture card and comic Jimmy Fallon to publicize its cash rewards card. Both cards are geared toward wealthier consumers, Scott Valentin, an analyst at FBR Capital Markets in Arlington, Virginia, said in an interview.
“I believe that we already have good success in our business when you look past the things that we’re running off,” Fairbank said on the conference call. “That’s the results of many things including our investment in marketing.”
Card purchases rose 12 percent to $50.8 billion from a year earlier, according to the statement. U.S. card balances were $70.5 billion at the end of June, little changed from March. Auto loans advanced 5.1 percent to $29.4 billion from the first quarter.
American Express Co. (AXP:US), the biggest credit-card issuer by purchases, posted a record profit this week as customer spending rose. Net income at the New York-based firm rose 4.9 percent to $1.41 billion. AmEx fell 3.6 percent yesterday on top of a 1.9 percent decline on July 17, the biggest two-day drop since November 2011, amid investor concern that a European Commission plan to cap card fees may crimp profit.
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