Capital One's Falling Profit

Here's a look at its stock:

Capital One Financial of McLean, one of the nation's largest providers of credit cards and auto loans, announced 2007 profit would fall about 20 percent below an earlier forecast, offering fresh evidence that the credit crunch is taking a toll on a wide swath of the lending industry.

In a press release issued just after midnight, the company said the decline was the result of delinquencies in the fourth quarter and a slowing economy. The release indicated that the mortgage troubles that shook the markets beginning last summer started to seriously affect other areas of lending in the last three months of the year.

Capital One said it would take a provision of $1.9 billion in the fourth quarter -- designed to cover loans that go bad -- more than double the figure a year earlier. Overall profit is expected to decline to 60 cents per share in the fourth quarter, compared to $1.14 per share in the same period in 2006.

Overall, 2007 profit should come in at $3.97 per share, below an earlier $5 per share target, the company said.

Capital One is scheduled to release fourth quarter earnings on Jan. 23.

In October, the company announced its first quarterly loss ever, from the expensive of shutting down its mortgage lender, and warned of additional challenges in the credit card and auto loan business. The company shuttered GreenPoint Mortgage in August, taking a $898 million charge.

Despite the troubles, the company said its balance sheet remained "strong" at the end of 2007 with more than $29 billion in available liquidity. The company's financial position should allow it to continue to expand its credit card businesses as well as other areas into 2009, the statement said.

The results could be closely watched for clues to consumer behavior. After announcing third quarter results in October, chief executive Richard D. Fairbank said he sees a strong economy and has not seen
major changes in how consumers use credit cards.

--Zachary Goldfarb

By Dan Beyers  |  January 10, 2008; 8:20 AM ET
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