Summary
Capital One Financial Corporation (COF) filed an 8-K on November 6, 2007, to update investors on its 2008 credit outlook during an investor conference webcast. The primary focus was a revision to the company's projected charge-offs for 2008. Initially, Capital One had forecast $4.9 billion in charge-offs for 2008, including an "extra" $175 million in the first quarter, based on existing delinquency trends and economic assumptions at the time. The company has now broadened this outlook to a range of $4.9 billion to the "mid $5 billions" for 2008 charge-offs. This wider range accounts for two key uncertainties: the potential persistence of elevated credit card delinquencies beyond the company's prior expectations, and the possibility of continued degradation in the housing market, which could further impact loan performance. While the company stated it was still on track for Q4 2007 and Q1 2008 charge-off targets, recent October flow rate data suggests that delinquencies may not resolve as quickly as anticipated, potentially extending the impact of higher charge-offs into the second quarter of 2008.
Key Highlights
- 1Capital One revised its 2008 charge-off forecast upwards, now ranging from $4.9 billion to the mid-$5 billions, from a previous single estimate of $4.9 billion.
- 2The revised outlook incorporates the potential impact of persistently elevated credit card delinquencies.
- 3The company also factored in the risk of continued degradation in the housing market.
- 4Recent October flow rate data for the US Card business indicates a trend above the lower end of the 2008 charge-off range.
- 5Elevated early-stage delinquency flow rates suggest that expected Q1 2008 "extra" charge-offs might extend into Q2 2008.
- 6Despite the revised outlook, the company indicated it remains on track for its Q4 2007 and Q1 2008 specific charge-off targets.
- 7The update was provided by the Chief Risk Officer during an investor conference webcast.