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Credit Card Charge-Off Surge Hits Cap One Bottom Line
April 18, 2008
The credit card giant reports charge offs rose sharply and will hover in the 6% level for the rest of the year. The good news was a drop in delinquencies.
Consumer credit card giant Capital One Thursday reported that earnings for the first quarter fell more than 18 percent as charge-offs in its U.S. credit card unit spiked to a rate of 5.85 percent, with higher rates on the horizon.
McLean, Va.-based Capital One Financial Corp. (NYSE: COF) said that in the first quarter of 2008, earnings fell to $548.5 million from $675 million in the first quarter of 2007. Total revenue in the quarter was $3.85 billion compared to $3.38 billion in Q1 2007.
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The U.S. card unit was responsible for much of the earnings decline. The unit reported net income of $491.2 million, a 1.5 percent decrease from the fourth quarter of 2007 and an 8.8 percent decrease from the first quarter of 2007.
Cap One also reported a sharp rise in charge-offs in the card unit and the promise of more to come. Charge-offs rose in the first quarter of 2008 to 5.85 percent of all accounts from 4.84 percent in the fourth quarter of 2007, and from 3.72 percent in the first quarter of 2007. The company expects the charge-off rate to be in the low six percent range for the next six months, but higher still in the fourth quarter.
As charge-offs rose, delinquencies dropped from last quarter, said the company. Card delinquencies improved in the first quarter of 2008 to 4.04 percent from 4.28 percent in the previous quarter but rose from 3.06 percent in the first quarter of 2007.
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