Capital One Sees Spike in Card Charge-offs in January

Capital One Financial, one of the largest credit card issuers in the U.S., said Tuesday that its net charge-off rate for U.S. credit cards jumped to 6.65 percent in January, up from 5.74 percent in December. Delinquencies -- accounts 30 or more days past due -- in the card unit rose slightly to 5.05 percent in the month.

McLean, Va.-based Capital One (NYSE: COF) reported the numbers in an SEC filing late Tuesday. Capital One said that in January its net charge-off rate in the U.S. card business surged to 6.65 percent from 5.47 percent in December. But one analyst noted that the cause of the rise was primarily due to a shift in Capital One’s policy.

"We believe the implementation of numerous policy changes (including the six month anniversary of reducing the grace period from 30 to 25 days) helped contribute to this sharp increase," Richard B. Shane, an analyst with Jefferies, told the Associated Press.

Capital One had previously said that it expected charge-offs in the unit to be around 7 percent in January. Investors welcomed the news of lower than expected charge-offs, sending the company’s stock higher by a combined 5 percent on Tuesday and Wednesday.

Delinquencies in the U.S. card unit also rose to 5.05 in January from 4.95 percent in December. According to the filing, Capital One held $51.3 billion in credit card loans at the end of January.

Overall, Capital One reported that its entire managed loan portfolio saw a net charge-off rate of 3.99 percent in January, up from 3.61 percent in December. Delinquencies corporate-wide remained flat at 3.87 percent primarily on improvement in the delinquency rate of auto loans.

The filing by Capital One dovetails with a Moody’s research report which predicted higher charge-offs in the U.S. credit card market over 2008 (“Moody's Gives Credit Card Sector a Negative Outlook, Says Charge-offs will Rise,” Feb. 13). In that report, Moody’s noted that among the eight largest credit card issuers Capital One had the highest rate of customers with FICO credit scores under 660.

But Moody’s SVP William Black told insideARM that the FICO score isn’t necessarily the best indicator of credit quality among credit card issuers. “You have to remember that different banks use different credit scoring products,” he said. “Even within FICO, there are different products.”

Black noted that while Capital One has the current highest rate of sub-660 FICO score customers, the bank’s overall percentage of those consumers has been moving down.