Spending, Charge-Offs Lead to Mixed Picture for Capital One, Discover -- Update
25 Ottobre 2017 - 3:23AM
Dow Jones News
By AnnaMaria Andriotis
Credit-card issuers Discover Financial Services and Capital One
Financial Corp. reported Tuesday that rising interest rates helped
results in the third quarter as consumers took on more debt.
The rising rates collected by the lenders helped to offset the
year-over-year increases in charge-offs at both companies as well
as the growing amounts they are setting aside to cover for future
loan losses.
Capital One's profit for the third quarter increased 10% to
$1.11 billion, or $2.14 a share, from $1.01 billion, or $1.90 a
share, in the year-ago period. Profit beat analyst estimates, while
earnings per share came just shy of analysts' estimates of
$2.15.
When adjusted to exclude certain items, including restructuring
charges related to "realignment" of its workforce and the closing
on its purchase of the Cabela's credit-card portfolio, Capital One
said it reported earnings of $2.42 a share. Revenue came in at
$6.99 billion, up 8% from a year prior, beating analysts'
estimates.
Capital One shares rose about 2% in after-hours trading Tuesday,
while Discover's shares were inactive.
Discover's profit for the quarter totaled $602 million, down 6%
from year prior, or $1.59 a share, compared with $1.56 a year
prior. Both figures beat estimates as did revenue that came in at
$2.53 billion, up 10% from a year prior.
Net charge-off rates, which measure loan losses, largely
improved for both companies from the prior quarter but worsened
from the year-ago period. The third quarter is often when
credit-card charge-offs are the lowest for lenders. Both Capital
One and Discover loan performance figures are generally indicators
of consumers' ability to pay back their debts in part because they
lend to a range of borrowers and aren't largely focused on the
affluent.
At Discover, the credit-card net charge-off rate totaled 2.80%
in the third quarter, up 0.63 percentage point from year prior. The
company increased provisions for loan losses by 51% from a year
prior to $674 million, suggesting it expects losses to grow.
Discover's earnings press release said charge-off rates increased
in part because of an oversupply of credit that is available to
consumers.
At Capital One, domestic credit-card net charge-off rate
increased 0.90 percentage point year-over-year to 4.64% and
provisions for overall credit losses rose 15% to $1.83 billion.
Lending standards are tightening, with some lenders lowering
spending limits. David Nelms, Discover's chief executive, said on
the earnings call that the company over the past year lowered
spending limits in "some segments of the credit card
portfolio."
Discover is also pulling back on certain segments of the
personal loan market. Mr. Nelms said the company has been taking
"significant" action with its personal loans, where it has been
"scaling back the volume of originations" with nonexisting
customers. Problem spots included some borrowers who had personal
loans from Discover and other lenders and had taken on more credit
than they could handle. "There's been a big increase in supply, and
I think that maybe has caught up to some people because we're
having to make adjustments," said Mr. Nelms in an interview after
the earnings call.
Capital One's chief executive Richard Fairbank said on his
bank's earnings call that he expects the Cabela's acquisition will
likely help to reduce the bank's delinquency and charge-off rates
going forward from what it would otherwise be. The Cabela's
portfolio, he said, has lower loss rates -- a characteristic shared
by several outdoor recreational goods retailers. Mr. Fairbank
suggested the bank would be interested in other high-quality
acquisitions. "I think over time, it is more likely that you'll see
Capital One in pursuit of higher-end opportunities than lower-end
opportunities," he said.
Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com
(END) Dow Jones Newswires
October 24, 2017 21:08 ET (01:08 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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