8-KRegulation FDExhibits & Filings

CAPITAL ONE FINANCIAL CORP 8-K Report, Regulation FD Disclosure (Apr 7, 2023)

Filed April 7, 2023For Securities:COFCOF-PLCOF-PICOF-PKCOF-PNCOF-PJ

Summary

Capital One Financial Corporation (COF) disclosed on April 7, 2023, that its subsidiary, Capital One, National Association, received a notice of termination from Walmart regarding their exclusive credit card partnership agreement (CCPA). Walmart has subsequently filed a lawsuit seeking to terminate the program early. Capital One disputes Walmart's right to terminate and intends to vigorously defend its contractual rights. This partnership, as of December 31, 2022, comprised approximately $8.3 billion in outstanding loan balances and contributed roughly $214 million in net income for the year 2022. The company notes that the allowance for credit losses and capital held against this portfolio are lower due to a loss-sharing arrangement. The financial impact on Capital One will depend on the resolution of the dispute and litigation, with a potential portfolio transfer to a new issuer not expected before January 2025 if Walmart prevails. The agreement outlines terms for the sale of the private label and co-branded accounts.

Key Highlights

  • 1Walmart has notified Capital One of its intent to terminate the exclusive U.S. private label and co-branded credit card partnership.
  • 2Walmart has filed a lawsuit seeking a declaratory judgment to terminate the agreement early, which Capital One disputes.
  • 3The card program had approximately $8.3 billion in outstanding loan balances as of December 31, 2022.
  • 4The program generated approximately $214 million in net income after taxes for the year ended December 31, 2022.
  • 5Capital One states it will vigorously defend its contractual rights against the termination.
  • 6If Walmart's termination is upheld, the card portfolio transfer is not expected to occur before January 2025.
  • 7The CCPA includes provisions for the purchase price of the transferred accounts, with Capital One potentially retaining a premium on co-branded accounts.

Frequently Asked Questions

Walmart has issued a notice to terminate the exclusive credit card partnership agreement with Capital One, and has subsequently filed a lawsuit seeking to enforce an early termination. Capital One disputes Walmart's right to terminate the agreement and plans to contest it legally.

As of December 31, 2022, the program had about $8.3 billion in outstanding loan balances and contributed approximately $214 million in net income after taxes for the year 2022. The associated allowance for credit losses and capital requirements are lower due to a loss-sharing arrangement.

If a court rules in favor of Walmart's termination, Capital One anticipates the card portfolio transfer to a new issuer would not occur any earlier than January 2025.

The agreement stipulates that either Walmart or a new issuer would pay Capital One a purchase price equal to par for private label accounts and fair market value for co-branded accounts. Capital One is entitled to retain any premium exceeding 1.5% of the par value for the co-branded accounts.