Morning Brief: Capital One Reports 4Q Loss
Capital One Financial ended 2008 in the red after a massive $1.42 billion loss in the fourth quarter.
Its $46 million loss for the year was the first annual loss in the bank's history.
The bank joined a growing chorus of banks in predicting that 2009 will be even worse as an accelerating recession increases the ranks of borrowers unable to make payments.
The company also said its planned acquisition of Chevy Chase Bank would create a further strain by significantly increasing its loan portfolio without a commensurate increase in the amount of capital held against possible losses. Still, Capital One executives said the financial results showed the company's relative strength as some rivals post much larger losses.
In other local news, Sallie Mae said yesterday that it expects a spike in defaults this year on its equivalent of subprime student loans as the economy continues to deteriorate and borrowers are unable to make payments.
The Reston company, which is the nation's largest student lender, said defaults on its portfolio of so-called non-traditional loans increased near the end of 2008.
Like subprime loans, these loans are considered risky for lenders and thus carry a higher interest rate than traditional loans. Among the factors that make them risky are that the students are attending programs with low graduation rates or are studying for jobs with a low income relative to their tuition.
Sallie Mae, formally known as SLM Corp., stopped making such loans in January 2008 after experiencing heavy losses on them. But it retains some in its portfolio.
Top Sallie Mae executives, in a conference call with investors yesterday, said that defaults on this portfolio were likely to peak this year, largely due to the worsening economy. In addition, the problem could be exacerbated by a decision last year to limit the ability of some of these borrowers to take advantage of a type of grace period known as forbearance.
January 23, 2009; 8:48 AM ET
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