Capital One Profit Climbs on Credit-Card Spending

Thursday, 19 Apr 2012 04:46 PM

 

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Capital One Financial Corp., the lender that acquired ING Groep NV’s online U.S. bank this year, posted a higher first-quarter profit as credit-card rewards programs fueled customer spending.

Net income rose 37 percent to $1.4 billion, or $2.72 a share, from $1.02 billion, or $2.21, a year earlier and included an accounting gain of $594 million tied to the purchase of ING Direct USA, Capital One said today in a statement. Adjusted profit of $1.56 a share beat the $1.39 average estimate of 24 analysts surveyed by Bloomberg.

“As consumers get a little more confident and the unemployment rate comes down, they are using their cards more,” Scott Valentin, an analyst at FBR Capital Markets, said in an interview before results were announced. “They have been emphasizing cash-back and travel rewards and that tends to be a high-quality, high-spending customer.”

Chief Executive Officer Richard Fairbank, 61, has spent more than $28 billion on acquisitions since 2005 to expand beyond the firm’s core credit-card business. The deals have transformed the McLean, Virginia-based company into the sixth- biggest U.S. commercial bank by deposits, capped by this year’s purchase of ING.

Capital One fell 33 cents to $53.93 at 4 p.m. in New York. The shares have advanced 28 percent this year, compared with a 21 percent gain for the 24-company KBW Bank Index.

Venture Card Rewards

The lender gave away 1 billion reward miles in 31 days after introducing a promotion in March for its Venture Card, which offered customers double miles for every dollar spent, up to 100,000, according to a statement. The U.S. economy has added 635,000 jobs since December, helping to cut the unemployment rate to 8.2 percent, Labor Department data show.

The purchase of ING Direct in February added about $83 billion in deposits and 7 million customers. The company has said it expects to complete the acquisition of HSBC Holdings Plc’s U.S. credit-card portfolio this quarter after selling $1.26 billion in stock last month to help pay for it.

Fairbank also seeks to control costs after fourth-quarter profit missed analysts’ estimates as noninterest expense rose 25 percent to $2.62 billion. Those results, announced Jan. 19, surprised investors and prompted at least six analysts to ask for clarity on the company’s expenses during a conference call.

Julie Rakes, a Capital One spokeswoman, said in an e-mailed statement earlier this week that the lender has started cutting 500 assistant tellers and reorganized its retail bank, consolidating 14 regions into eight.

“As you can imagine, in this challenging economic environment, the bank requires a leaner and more efficient operating model,” Rakes said.

Capital One said in a regulatory filing last month that first-quarter profit from continuing operations would be at least $2.50 a share, including an accounting gain of $1.15 from the ING purchase. Valentin said that he and other analysts took that to mean they should expect $1.35 of core earnings.


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