Capital One’s 4Q profit buoyed by strong credit quality – About Your Online Magazine


Capital One Financial is the latest credit card issuer to release reserves because its loans performed better than expected during the pandemic.

A $ 593 million reserve release helped propel Capital One to net revenue of $ 2.6 billion during the fourth quarter, which was $ 1.2 billion in the same period last year.

“Consumers are behaving cautiously, spending less, saving more and paying off debts,” said President and CEO Richard Fairbank on Tuesday during the company’s quarterly earnings conference call. “These behaviors were amplified by the cumulative effect of an unusually large government stimulus and widespread tolerance across the banking sector.”

Between January 1 and September 30 last year, the McLean-based company, Va., Increased its loss provisions by $ 5.6 billion to protect against possible defaults related to the coronavirus pandemic. But Capital One’s net write-off rate in the fourth quarter was 1.38%, down from 2.6% the previous year. The percentage of credits overdue for at least 30 days also dropped by more than one percentage point.

Similar positive credit trends drove fourth quarter results at other major card issuers, including JPMorgan Chase, Bank of America, Citigroup and Discover Financial Services.

At Capital One of $ 421.6 billion, the historically strong credit performance across all loan categories helped offset the declines in card loan volumes during the quarter.

While auto loan origins fell by 2% compared to the fourth quarter of 2019, the net casualty rate for auto loans also fell from 1.9% to just 0.5%. Capital One said it expects the credit quality of its auto loans to weaken in the future, partly as a result of the end of pandemic-era indulgence offers.

“The uncertainty about future credit trends remains high, especially in the context of an evolving pandemic that is difficult to predict,” warned Fairbank.

In the company’s credit card business in the US, the volume of loans held for investment at the end of the quarter fell 17% over the previous year to $ 98.5 billion.

The company attributed the drop in part to reduced marketing spending. Capital One reduced its marketing spending at the start of the pandemic and has yet to return to its previous spending level. Marketing expenses during the fourth quarter totaled $ 563 million, down from $ 710 million in the same period last year.

John Hecht, an analyst at Jefferies, wrote in a research note on Tuesday that he expects credit card loan growth to resume in the second half of 2021.



Paula Fonseca