What Cap One Gets Right?nd Where It Goes Wrong

"Cap One's Credit Trap" (News & Insights, Nov. 6) underemphasizes the benefits that companies like Capital One Financial Corp. (COF) bring to borrowers with poor credit. In the past, individuals with low income or sketchy borrowing histories were denied access to credit cards and deprived of an essential convenience. Through creative pricing and marketing approaches, credit-card companies have learned how to participate profitably in the low end of the market and in the process have lifted low-income households into the mainstream.

Park Duncan

Greenwich, Conn.

Unlike most providers of credit, which arbitrage their cost of capital against those of their borrowers, Capital One has profited for years from late and over-limit fees, also known as "nuisance fees," that it appears to generate at a prodigious rate.

In 2000, Richard D. Fairbank, chief executive of Capital One, stated that by not having raised its nuisance fees from $25 an incident to $29, as most of the company's competitors were doing at the time, Capital One had forgone $200 million of revenue.

The implications of that disclosure were not flattering. If Capital One had foregone $200 million in revenue on a $4 hike in fees, it would suggest that there were about 50 million incidents in which the fee could have been raised. Those 50 million incidents each generated a charge of "only" $25, bringing in a total of $1.25 billion. During the previous year Capital One earned under $600 million, pretax, or less than half the income generated by nuisance fees.

If Capital One were to cut the frequency of incidents that generated fees by only 25% in that year, which, given industry experience, was not unreasonable, they would have cut their earnings by 50%. When William Ryan suggested that Capital One earnings could be "devastated" by a regulatory crackdown, I think he was being kind.

Adam Hurwich

Calcine Management

New York

The thompsons' problem was self-inflicted. Capital One never forced the couple to apply for any of their credit cards. It is the individual's financial responsibility to balance his or her own books and ensure that he or she is not overspending.

Beau Wallace

College Station, Tex.

The sad thing is that Capital One offers multiple credit cards to targeted customers because if they don't, their competition will. This practice is evidence of a business gone wild and is precisely why intelligent federal regulation is needed.

Robert Carcich

Eatown, N.J.

BusinessWeek asks: "Can you trust your trustee?" (Personal Finance, Nov. 6). As president of Wachovia Trust, I can answer unequivocally: "Yes, you can!"

While it is the goal of every trustee to generate maximum returns for beneficiaries, it is important to remember that a trustee's first and foremost duty is to respect and follow the direction set by the client who originally placed their trust in the trustee. Therefore, there are several points that I believe beneficiaries and potential trust clients should take into consideration.

Trusts are usually created by individuals seeking to have their investments managed by a professional investment manager under strict fiduciary standards, which create the highest level of duty for the manager to look out for the client's best interests.

Beneficiaries are sometimes disappointed at the instructions their parent or grandparent created for their inheritance. Beneficiaries often wish they could withdraw all of the assets that have been left to them as an inheritance, but trustees are usually directed to exercise discretion in distributing the assets at a pace that balances a beneficiary's current and future needs.

It is important for beneficiaries to have access to trustees. Today's broad geographic coverage of large banks like Wachovia enables clients to access their banks more easily than ever before. Other modern vehicles, such as Web sites and trust centers, also provide complete and easy access to trust experts.

W. Robert Newell


Wachovia Trust

Winston-Salem, N.C.

Your guidance to beneficiaries regarding trustee performance failed to mention a root cause of tension: the multiple hats worn by trustees. The simplest way to assure that the performance and fees of asset managers will be independently monitored is to use independent trustees when structuring family legacies.

Asset managers often serve as trustee not because they are truly set up to do so in a careful and thoughtful way but because they want the money-management role. In doing so, they essentially report to themselves, which is hardly a recipe for happy beneficiaries in the long term.

A.G. Newmyer III

Managing Director

U.S. Fiduciary Advisors

Palm Beach Gardens, Fla.

It strikes me as curious that you would so casually refer to Berkshire Hathaway (BRK)shares as "notoriously pricey" ("White knight of the week," The Business Week, Nov. 6). Although buying Berkshire does indeed require a significant commitment of capital for most investors, at 15 times earnings it can hardly be considered pricey, much less notoriously so. Were Berkshire's share price to rise to, say, $420,000, giving it a multiple equal to Google Inc.'s (GOOG), words like pricey might conceivably come into play--though I'm sure some Berkshire aficionados (and certainly die-hard Google fans) would disagree even then.

Andy Obermueller

Amarillo, Tex.

Splitting the roles of chairman and CEO is sensible if you seek good governance ("A dangerous division of labor," Ideas: The Welch Way, Nov. 6). The tasks are different: The board oversees, and management manages. Each needs its own leader, and each leader needs to respect the limits of each job.

Ira Millstein

New York

The Welches made a strong pitch for having one person as chairman and CEO. But they attach a condition that is rarely fulfilled: Outside directors should talk to people inside and outside the company to find out what the reality is when it comes to top-management performance. When that happens, it doesn't make much difference if the jobs are split. Unfortunately, many outside directors do not have the time for such visits, and many executive directors do not accept such contacts outside their control. The Welches' recommendation would make a huge difference in reducing reputational risk and increasing the contribution of outside directors.

Laurens van den Muyzenberg

Cannes, France

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