One analyst reaction to earnings. Worry, worry a lot!
"While Capital One's credit card segment has remained resilient relative to other lending segments, the severity of the current economic environment coupled with lower loan growth is now beginning to exhibit pressure on Capital One's credit card loan portfolio," Oppenheimer analyst Meredith Whitney wrote in a note on Wednesday.
If this was written on Wednesday how is it a reaction to earnings released afterhour on Thursday? In this economic environment and looking at some of the BIG boys I'm happy holding a company that is still making solid money!!!
On top of everything that might cause concern in the current environment, you folks should also know COF has been aggressively and broadly soliciting high credit score borrowers (like my wife, sister and I) with 0% interest offers for as much as 2 yrs, with NO bal xfer fees.
They have loaded up their balance sheet with billions of $ in non-earning assets that will severely drain earnings, all in the interest of reducing their bad debts % by increasing the "denominator" with low-risk account balances that unfortunately cost them somewhere between 6% and 8% per annum, depending on their applicable cost of capital.
This is just one more in a series of pathetic attempts to manipulate the performance of an otherwise lousy portfolio, hoping that by announcing lower charge-offs, they might convince naive investors that things are rosy over there in Virginia.
Eventually, and given the current environment, this will inevitably come back to bite them in the butt, as the market is not in a very forgiving mood these days. Somehow, by most people's math, bleeding with high charge-offs while losing money on your better credits does not seem to be a formula for a successful credit card company.
I doubt their auto business is much better. The former North Fork Bank may be in decent shape, who knows???
Strongly concur with all the above. The credit card phase of this financial crisis is being exacerbated by the impending recession (unemployment & inflation) and will reek havoc on that part of the financials that is not protected by the recent "rescue measures". COF is not as protected as Citi and JPM. Meredeth has not been popular but she has not been wrong either. Like Citi and Merrill Lynch last year, her prophecies will not blossom for several months...the next earnings report.
It seem that it is just beginning of the big trouble for credit card industry. It's about time for those crooks who are charging 18% for your money to start suffering. Let them taste their own loan sharking medicine. We will likely to see prolonged contraction from love affair with credit cards now. Spend now and pay later? It's more like spend now and default later. Anyone long this stock or other credit card stocks must be brain dead.
I used to own 300 shares of this stock which I acquired last year. Now I own zero share.
I was lucky to lose "only" about $1000 on my 300 shares. It is because in the short term, this stock always bounces back strong. It gave me opportunities to sell some shares every time it bounced back. So, it isn't a bad thing if this stock bounces back, at least in short term.
Meredith I'm sure will be downgrading this POS first thing in the AM. Wasn't she the one who was lowering estimates in all the financials a few months back while others were calling her crazy? One smart coooky...