Cap One Stock Falls as it Revises 2007 Earnings

Investors sent the stock of Capital One Financial Corp. (NYSE: COF) reeling this morning after it reported that it expected its earnings for 2007 would be $3.97 a share, down from previous estimates of $5 a share.The stock was down nearly 5 percent to $41.23 this morning. The stock traded as high as $83.84 in the last 12 months.

The McLean, Va.-based card issuer and retail banker reported the decline was due to greater provision for loan losses, continuing losses in its Home Equity Lines of Credit (HELOC) of $700 million from its failed GreenPoint Mortgage division ("Major Lenders Laying Off Thousands," Aug. 21, 2007), legal costs, and a weakening economy.  

In the fourth quarter Cap One expects to set aside about $1.9 billion for loan losses, reflecting losses in its consumer loan portfolio and the problems stemming from GreenPoint. It expects in the quarter managed charge offs on its entire product line of $1.3 billion, double a previous estimate. Cap One expects managed charge offs of about $5.9 billion in 2008.

The company also recorded a pre-tax charge in the fourth quarter of approximately $80 million for liabilities in connection with the Visa antitrust lawsuit settlement with American Express, and set aside another $60 million for further legal charges related to Visa litigation. Visa is being sued by Discover Financial Services over antitrust issues, in a case similar to one with AmEx.

Cap One reported in a separate filing the annualized net charge off rate for its U.S. credit card unit in December was 5.74 percent, compared with 5.34 percent in November. The 30-day delinquency rate for the division was 4.95 percent, compared with 4.93 percent in November.