SAN FRANCISCO — Capital One Financial Corp., the lender that gets more than half of revenue from credit cards, said second-quarter profit fell 90 percent as an acquisition forced it to set aside loan-loss reserves.
Net income fell to $92 million, or 16 cents a share, from $911 million, or $1.97, a year earlier, the McLean, Va.-based company said Wednesday in a statement. Adjusted profit of 33 cents a share missed the $1.46 average estimate of 20 analysts surveyed by Bloomberg.
Chief Executive Officer Richard Fairbank, 61, has spent more than $28 billion on acquisitions since 2005 to expand beyond the credit-card business. The deals, including the 2012 purchase of ING Direct USA and HSBC Holdings’s U.S. card business, made Capital One the sixth-biggest U.S. commercial bank by deposits. The company set aside the reserves to cover losses on the acquired HSBC loans.
“While results will likely be somewhat noisy in the coming quarters as well, we believe COF is making progress to more normal earnings growth and profitability,” Evercore Partners Inc. analysts led by Bradley Ball wrote in a July 2 report, referring to the company’s stock ticker. “We continue to expect solid earnings.”
Capital One fell 1.7 percent to $54.89 in New York trading. The shares have advanced 30 percent this year, compared with the 17 percent gain for the 24-company KBW Bank Index.
“We will build an allowance for these nonimpaired loans in Q2 and this will go through the provision expense line,” Capital One Chief Financial Officer Gary Perlin said at an investor conference June 13. “This expense should consume most or all of one quarter’s normal income.”
Revenue at Capital One, which primarily lends to U.S. consumers through its credit-card unit and an auto-loan business, is threatened by new regulatory regimes intended to protect shoppers. The company also has a commercial-banking business and offers home loans.
Capital One said earlier Wednesday it had agreed to pay a total of $210 million to settle charges that third-party vendors engaged in deceptive marketing of credit card “add-on” products such as payment protection and credit monitoring. The newly created Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency said the lender agreed to refund between $140 million and $150 million to 2 million customers and pay an additional $60 million in penalties — $25 million to the CFPB and $35 million to the OCC.
Capital One said in a statement that it became aware of its vendors’ practices in late 2011.
“We are accountable for the actions that vendors take on our behalf,” Ryan Schneider, president of Capital One’s card business, said in the statement. “These marketing calls were inconsistent with the explicit instructions we provided to agents for how these products should be sold. We apologize to those customers who were impacted and we are committed to making it right.”
