Capital One beats estimates, seeks higher capital return

Reuters

* Less money set aside for credit card defaults

* Third-quarter earnings per share $1.86 vs est. $1.80

* To request higher capital return in 2014 plan

* Shares up 2 percent in extended trading

By Aman Shah

Oct 17 (Reuters) - Capital One Financial Corp posteda quarterly profit that beat Wall Street estimates after settingaside less money to cover credit card defaults, sending itsshares up 2 percent after the bell.

The bank, one of the largest credit card issuers in theUnited States, also plans to return more cash to shareholdersnext year, Chief Financial Officer Stephen Crawford said on apost-earnings conference call.

He said Capital One would request a payout "well above theindustry norm of 50 percent" when it submits its 2014 capitalplan to the Federal Reserve, which conducts annual stress teststo determine whether U.S. banks can return cash to shareholders.

Capital One has spent much of the past decade transformingitself from a specialty credit card issuer dependent on bondmarket funding into one of the top 10 U.S. banks by deposits,with more than a thousand branches nationwide.

The McLean, Virginia-based company set aside $849 million tocover bad loans in the third quarter, 16 percent less than ayear earlier.

"The surprise probably came in terms of the provisions,which were lower than what many analysts expected," said SameerGokhale, an analyst at Janney Capital Markets.

Net interest income, the difference between what banks earnon loans and pay out on deposits, fell 2 percent to $4.56billion in the quarter ended Sept. 30.

Capital One passed the Federal Reserve's stress test inMarch, after which it raised its quarterly dividend to 30 centsper share from 5 cents per share and launched a $1 billionbuyback.

The company bought back shares worth $300 million in thethird quarter and expects to complete the buyback in the fourthquarter, Crawford said. He did not say how the bank intended todistribute capital to shareholders next year.

Sanjay Sakhrani, analyst at Keefe, Bruyette & Woods, saidhis brokerage's model estimated that Capital One could pay outabout 74 percent of its earnings in 2014, which could equate toabout $2.8 billion in buybacks and dividends.

CREDIT METRICS PRESSURED

Despite beating analysts' estimates, Capital One stillrecorded a 6 percent decline in net income in the third quarter.

Credit card usage in the United States declined for a thirdstraight month in August, as tepid consumer spending coupledwith uncertainty around the partial government shutdown hurtconsumer sentiment.

Rival credit card issuer American Express Co, whichhas a greater proportion of corporate card users, is lessexposed to the wider consumer spending slowdown and on Wednesdayposted a rise in quarterly profit.

Capital One's net charge-off rate, the percentage of loanswritten off as unrecoverable, was 1.92 percent, an increase of17 basis points from the year-earlier quarter.

"Over the next two quarters, we expect a temporary increasein delinquencies and charge-offs beyond normal seasonality,"Capital One Chief Executive Richard Fairbank said on the call.

Net income available to stockholders was $1.10 billion, or$1.86 per share, for the third quarter. Net revenue fell 2percent to $5.65 billion.

Analysts on average expected the company to earn $1.80 pershare on revenue of $5.58 billion, according to Thomson ReutersI/B/E/S.

Capital One's shares, which have risen 35 percent in thepast six months, rose to $73.50 in extended trading on Thursdayafter closing at $72.15 on the New York Stock Exchange.

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