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Company Profile of Capital One -
May 3rd, 2011
COF, or Capital One Financial Corp. (NYSE: COF) is a U.S. based bank holding company specializing in credit cards, home loans, auto loans, banking, and savings products. A member of the Fortune 500, the company helped pioneer the mass marketing of credit cards in the early 1990s, and it is now the fourth largest customer of the United States Postal Service and has the 8th largest deposit portfolio in the United States. It has its corporate offices in Tysons Corner, unincorporated Fairfax County, Virginia, near McLean.
Capital One Financial Corporation, incorporated on July 21, 1994, is a diversified financial services holding company. The Company and its subsidiaries offer a range of financial products and services to consumers, small businesses and commercial clients through branches, the Internet and other distribution channels. It operates in three business segments: Credit Card, which consists of domestic consumer and small business card lending, national small business lending, national closed end installment lending and the international card lending businesses in Canada and the United Kingdom; Consumer Banking, which consists of branch-based lending and deposit gathering activities for consumer and small businesses, national deposit gathering, national automobile lending and consumer home loan lending and servicing activities, and Commercial Banking, which consists of lending, deposit gathering and treasury management services to commercial real estate and middle market customers.
The Company’s subsidiaries include Capital One Bank (USA), National Association (COBNA), which offers credit and debit card products, other lending products and deposit products, and Capital One, National Association (CONA) which offers a range of banking products and financial services to consumers, small businesses and commercial clients. In September 2010, it rebranded Chevy Chase Bank, F.S.B. (Chevy Chase Bank). The Credit Card loan portfolio is diversified across millions of accounts and multiple geographies. It generally manages credit risk on a portfolio basis. The consumer banking loan portfolio consists of auto, home loan and retail banking loans. It also presents the delinquency and nonperforming loan rates of its consumer banking loan portfolio, excluding PCI loans, as of December 31, 2010. The Home Loan consists of both first-lien and second-lien residential mortgage loans.
By early 1996, Capital One had shifted away from its dependence on teaser rates to generate new business. According to American Banker, new marketing efforts included: cobranded/affinity, secured, and "joint account" cards. The company had been losing customers to competitors offering higher ceilings on loan balances and accounts with no annual fee. Capital One aimed at boosting its revenue in new ways. With secured cards, for example, people with flawed credit histories were required to put down deposits in order to get a line of credit.
In mid-1996, Capital One received federal approval to set up a thrift operation, Capital One FSB. The action allowed, among other things, Capital One to retain and lend out deposits on secured cards. The thrift charter also opened the way for financial activities, such as automobile installment loans. Also in 1996, Capital One expanded internationally, entering the United Kingdom and Canada.
According to a June 1997 article in Chief Executive, Capital One served nine million customers and held $12.6 billion in credit card receivables. Capital One's success gained it a position on the Standard & Poor's 500. The company's return on assets exceeded 20 percent each year since going independent. Stock price rose above the $100 mark in 1998.
As envisioned by founders Fairbank and Morris, Capital One moved into new markets. America One Communications Inc., a wireless business subsidiary, was the country's only direct marketer of cellular phone service. With the purchase of Summit Acceptance Corp. in 1998, Capital One entered the automobile finance business. The Dallas-based subprime lending company held $260 million in managed loans. Fairbank told American Banker, "We feel we can bring the capability of risk management and more sophisticated marketing methodology into an industry that right now is in a depressed condition, with a lot of companies having run into credit problems."
The hitherto glowing reports by Capital One dimmed somewhat in 1999. America One was smacked with loses related to a wireless communication price war, forcing Capital One to rethink its strategy in that arena. In addition, subprime credit card issuers were being hurt by rising interest rates in mid-1999, but Capital One said that it had already been going after more affluent superprime borrowers, attempting to balance out its loan portfolio. Fairbank and Morris also had turned their attention to the Web. Capital One had held back while other card issuers were eager to log on. But once they decided to make the move, Fairbank and Morris believed, according to Business Week, Capital One's culture of innovation would help them catch up and even surpass more established Internet players.
Capital One began a concerted effort to boost brand recognition in 2000. According to the company, brand awareness was just 61 percent in June 1999. Many customers did not even know Capital One was an entity separate from Visa and Mastercard. In an all-out effort to be seen as a national brand, "What's in your wallet?" advertisements began showing up on the airwaves. There were promotions, too. In Chicago, for example, commuters were handed plastic cards alerting them to Capital One's online services and offering a chance to win a free computer.
Since its IPO, Capital One had more than quadrupled its earnings, according to Forbes, growing to $470 million in 2000 on credit card receivables of $30 billion. The industry itself had expanded rapidly. U.S. credit card debt hit $3 trillion, nearly twice the amount of four years earlier. Capital One held just 4 percent of total card loans. To keep up its growth rate Capital One needed to keep bringing in new accounts.
"Getting new customers is crucial not just to goose the company's earnings but to keep the charge-off ratio at a low 4%. An important subtlety about this ratio, not well understood by most investors, is that it mixes chronological apples and oranges," explained Condon in Forbes. Bad loans, when compared with current loans outstanding, rather than loans outstanding when the borrower stopped paying, resulted in a different slant on the company's current financial situation.
A key to Capital One's success to this point, and to its credibility among investors, had been its ability to find customers in higher risk segments with the best credit outlook. Were there enough of those good credit risks out there to continue to drive credit card growth? Could Capital One succeed in other financial service niches?
Increased Risks: 2001 and Beyond
Capital One dropped out of the wireless phone service business in 2000 but expanded its financial service offerings in 2001. In May, Capital One acquired AmeriFee Corporation. The Massachusetts-based company made consumer loans for elective medical and dental procedures. Then in October, PeopleFirst Inc., the largest online provider of direct motor vehicle loans, was purchased.
Capital One's marketing blitz, which continued in 2001, included sponsorship of college football's Florida Citrus Bowl. In addition, a "No-Hassle" Platinum Card was launched. Brand recognition reached 92 percent by December.
Overall, Capital One's reputation on Wall Street and within the industry remained solid. During 2001, the company ranked high on a number of "best places to work" lists. The company was also proud of its commitment to community. Following the September 11 attacks on the United States, thousands of Capital One employees volunteered to set up phone systems and then receive calls for the largest telethon in history, helping raise money for disaster relief.
In the midst of all this, some competitors in the credit card industry had begun a downward spiral. Preceding the events of September 11, Capital One's own stock took a beating in reaction to lowered estimates by Providian Financial. Some analysts felt that Providian's troubles were indicative of problems ahead for the industry as a whole. Capital One, like Providian, had a large number of riskier, but higher margin, subprime loans in its portfolio.
The economy soured post-9/11, but Capital One held its own. In 2001, the sixth largest credit card issuer in the United States reached its seventh consecutive year of 20 percent-plus annual earnings growth despite the economic recession, rising unemployment, and fears of more terrorist attacks, observed American Banker in January 2002.
Capital One revealed, about mid-July 2002, that the Federal Reserve Board and the Office of Thrift Supervision had taken informal action regarding the company's infrastructure. Capital One agreed to add to its loan-loss reserves and change the way it reported revenue on uncollectible finance charges and fees. Regulators were cracking down on card issuers in an effort to tighten account management standards. In addition, to the dismay of investors, Capital One revealed that the subprime segment of its credit card accounts was larger than previously understood.
To regain the confidence of regulators and investors, Capital One planned to pull back on the subprime while building up the prime and superprime credit card lending segments. A greater emphasis was to be placed, as well, on personal installment and auto loans and the consumer loan business outside the United States. But more negative news came in October 2002, when Capital One announced that it anticipated a drop-off in growth and a jump in the chargeoff rate. Wall Street was not impressed.
Principal Subsidiaries: Capital One Bank; Capital One, F.S.B.; Capital One Bank (Europe) plc (U.K.).
Principal Competitors: MBNA Corporation; Citigroup Inc.; First USA, Inc.; Providian Financial Corporation; Household International, Inc.; Metris Companies Inc.
Market Cap (Mil.): $25,125.62
Shares Outstanding (Mil.): 458.66
Annual Dividend: 0.20
Yield (%): 0.37
COF Industry Sector
P/E (TTM): 7.46 14.72 26.26
EPS (TTM): 163.42 -- --
ROI: -- 0.00 4.64
ROE: 12.95 3.18 9.12
Total Assets: $28.18 billion (2001)
Stock Exchanges: New York
Ticker Symbol: COF
NAIC: 522210 Credit Card Issuing; 551111 Offices of Bank Holding Companies
1994: Signet Banking Corporation announces its IPO and creation of a new credit card unit, Oakstone Financial Corporation.
1995: The spinoff is renamed Capital One Financial Corporation.
1996: The company starts doing business in Canada and the United Kingdom.
1998: The company acquires a U.S. auto lending operation.
1999: The company enters the Internet market later than its competitors but ramps up quickly.
2000: Capital One is added to the Fortune 500 list.
2001: The company buys online auto finance and elective medical and dental procedures finance businesses.
2002: The credit card industry is under the scrutiny of regulators.
Name Age Since Current Position
Fairbank, Richard 60 2003 Chairman of the Board, President, Chief Executive Officer
Perlin, Gary 59 2011 Chief Financial Officer
Schneider, Ryan 41 2007 President - Card
Yajnik, Sanjiv 54 2009 President - Financial Services
Carter, Lynn 54 2010 President - Banking
McFarland, Susan 50 2011 Executive Vice President - Finance, Principal Accounting Officer
Alexander, Robert 46 2007 Chief Information Officer
Schnall, Peter 47 2006 Chief Risk Officer
Finneran, John 61 2000 General Counsel, Corporate Secretary
Berson, Jory 40 2009 Chief Human Resources Officer
LaPrade, Frank 44 2010 Chief Enterprise Services Officer
Dietz, W. Ronald 68 1995 Independent Director
Gross, Patrick 66 1995 Independent Director
Hay, Lewis 55 2003 Independent Director
Shattuck, Mayo 56 2003 Independent Director
Hackett, Ann 57 2004 Independent Presiding Director
Leroy, Pierre 62 2005 Independent Director
Campbell, Edward 70 2005 Independent Director
Warner, Bradford 59 2008 Independent Director
Capital One Financial Corp
1680 Capital One Drive
McLean VA 22102