Capital One Financial Corp (COF) is a diversified financial services company, which markets a variety of financial products and services through its banking and non-banking subsidiaries. It has four segments: U.S. Card, Auto Finance, Global Financial Services and Banking. The U.S. Card segment comprises domestic consumer credit card activities. The Auto Finance segment comprises automobile and other motor vehicle financing activities. The Global Financial Services segment comprises international lending activities, small business lending, installment loans, home loans, healthcare financing and other activities. The Banking segment comprises local banking operations, which includes consumer, small business and commercial deposits and lending conducted within the Company’s branch network.
Capital One said its net charge-off rate rose to 3.28 percent in October from the third quarter’s 2.86 percent. The charge-off rate in U.S. cards rose to 5.11 percent from 4.13 percent in the same periods, while card loans at least 30 days past due rose to 4.75 percent from 4.46 percent. Capital One had on Tuesday raised its forecast for 2008 credit losses.
“While management previously indicated that the U.S. card loss rate would trend north of 5 percent in the fourth quarter, we were surprised to see how fast this jumped,” Credit Suisse analyst Moshe Orenbuch wrote. Standard & Poor’s revised its rating outlook for McLean, Virginia-based Capital One to “stable” from “positive.”
In a quest to reinvent itself, Capital One struck out too early, at the wrong time in the mortgage cycle acquiring NorthFork and Hibernia, despite having negotiated the minefield of consumer credit reasonably well in the earlier part of this decade. But, with long-time believers having been burned one too many times, and the credit cycle not yet in its terminal phase, its optimal solution may be to sell itself.
With recession upon us, along with the housing bust, the credit card companies will feel the pain. This makes COF an excellent short at 55-56$ level.
Current Price: 49.20
Disclosure: No position in COF, but will be planning to short it soon.