Summary
Capital One Financial Corporation (COF) has announced the immediate cessation of its residential mortgage origination operations through its GreenPoint Mortgage unit. This decision, effective August 19, 2007, stems from current challenging conditions in the secondary mortgage markets, which are creating significant near-term profitability issues for Capital One's "originate and sell" business model. The company anticipates that the markets for prime non-conforming mortgage products will remain difficult for the foreseeable future, impacting long-term profitability. This closure will result in an estimated after-tax charge of approximately $860 million, or $2.15 per share, with the majority recognized in 2007. A significant portion of this charge ($650 million) is a non-cash goodwill write-down related to the GreenPoint Mortgage acquisition as part of the North Fork Bancorporation transaction in December 2006. The remaining charges include restructuring costs for severance and facility closures ($100 million) and a valuation adjustment for ongoing operations ($110 million).
Key Highlights
- 1Capital One is immediately ceasing residential mortgage origination operations via GreenPoint Mortgage.
- 2The decision is driven by challenging conditions and reduced profitability outlook in the secondary mortgage markets, particularly for prime non-conforming products.
- 3An estimated after-tax charge of $860 million (or $2.15 per share) is expected due to the closure.
- 4Approximately $650 million of the charge is a non-cash goodwill impairment related to the GreenPoint acquisition.
- 5Restructuring charges for severance and facility closures are estimated at $100 million after-tax.
- 6A $110 million after-tax valuation adjustment for ongoing operations is also included in the charges.
- 7The company will continue to honor existing loan commitments with locked rates.