Sign in

    Capital One Financial Corp (COF)

    Q3 2024 Earnings Summary

    Reported on Jan 6, 2025 (After Market Close)
    Pre-Earnings Price$153.26Last close (Oct 24, 2024)
    Post-Earnings Price$164.28Open (Oct 25, 2024)
    Price Change
    $11.02(+7.19%)

    What went well

    • Capital One's Venture X card has seen strong market response and customer engagement, leading to faster growth rates in higher spend segments.
    • The auto business has demonstrated strong credit performance with increasing interest margins, offering opportunities to grow in a disciplined way.
    • Capital One has a strong CET1 capital ratio of 13.6%, and once regulatory approvals are obtained, the company may return excess capital through share repurchases.

    What went wrong

    • Potential Regulatory Risk Impacting Revenue: If the new late fee rule is implemented, it will have a significant impact on Capital One's revenue. The company is awaiting the outcome of industry litigation and acknowledges the rule could affect competition, pricing, customer behavior, volumes, and credit.
    • Elevated Credit Losses Above Pre-Pandemic Levels: Capital One's card credit losses have settled out above pre-pandemic levels due to factors like lower recoveries, cumulative effects of inflation and higher interest rates causing affordability pressures for consumers. The delayed charge-off effect is also still playing through.
    • Regulatory Uncertainty Affecting Capital Management: The pending acquisition of Discover requires Federal Reserve pre-approval of capital actions until the merger process concludes, limiting Capital One's flexibility in capital management, including share repurchases. Additionally, uncertainty around regulatory requirements like the "endgame rule" adds to challenges in capital planning.

    Q&A Summary

    1. Discover Merger Approval
      Q: Confident in Discover merger getting regulatory approval?
      A: Yes, we believe the acquisition is pro-competitive, particularly in acquiring a network we don't have. We're making a strong case to regulators focusing on increased competition in a concentrated industry.

    2. Credit Trends & Losses
      Q: What are you seeing in consumer credit trends?
      A: Consumer credit has stabilized, with delinquencies and charge-offs consistent with normal seasonality. Our credit results are strong and stable, settling above pre-pandemic levels due to lower recoveries, inflation effects, and delayed charge-offs from the pandemic.

    3. Capital Management & Buybacks
      Q: How is the Discover deal affecting capital and buybacks?
      A: Uncertainties around regulatory rules and the pending Discover acquisition lead us to maintain current capital levels. We've been repurchasing $150 million per quarter but await CCAR results post-closing to assess capital needs and potential for increased buybacks.

    4. Net Interest Margin Outlook
      Q: Expectations for net interest margin from here?
      A: Near-term modest headwinds from asset sensitivity as the Fed eases, but potential tailwinds from card growth. Longer-term factors like deposit betas and credit paths will influence NIM, but we've seen stability and a step up in the third quarter.

    5. Credit Normalization Path
      Q: What's the path to credit normalization and reserves?
      A: Credit has settled, but delayed charge-offs and recovery inventory rebuilding will influence future losses. Moderating inflation is positive, but high interest rates may pressure some consumers. Reserve coverage may decrease as uncertainties resolve and loss forecasts materialize.

    6. CFPB Late Fee Rule Impact
      Q: How are you preparing for the late fee rule?
      A: We're awaiting litigation outcomes. If implemented, the rule will significantly impact revenue, but also affect competition, pricing, and customer behavior. We've deferred some investments in anticipation but remain focused on preserving our customer franchise.

    7. Reserve Release & Credit Conditions
      Q: Does reserve release signal credit conditions improving?
      A: The reserve release reflects stability in underlying credit trends and our confidence in those trends. We assess forecasts and economic factors, and improvements may suggest peak reserve rates are behind us.

    8. NIM and Revenue Suppression
      Q: Will revenue suppression be a NIM tailwind?
      A: Yes, over time, as credit improves and loss rates decline, revenue suppression decreases, potentially benefiting NIM, excluding seasonal effects.

    9. Auto Loan Growth
      Q: Outlook for auto loan growth?
      A: Auto originations have grown for three consecutive quarters. With interest margins increasing and credit stabilizing, we're seeing opportunities to grow in a disciplined way, leveraging our strong underwriting and dealer relationships.

    10. Consumer Spending Trends
      Q: How are consumer spending trends affecting business?
      A: Spend per customer has remained largely flat since early 2023, ticking up recently. Growth is driven by new accounts. Discretionary and nondiscretionary spend growth rates are stable, and credit card use benefits from a macro shift away from cash and checks.

    11. Venture X Performance
      Q: Update on Venture X portfolio performance?
      A: We're very pleased with the market response and customer engagement since launching Venture X in late 2021. It's key to our strategy to win at the top of the market. We're investing in experiences like our travel portal and lounges, and growth has been strong, especially in higher spend segments.

    Related Publications