Capital One 2Q Surges On Card Spend

Capital One reported a robust second-quarter performance as the bank had increased spending and lowered losses in its credit card business. Chairman and CEO Richard Fairbank said the company showed strong year-over-year growth in pretax income, driven by revenue growth and significant improvements in provision for credit loss.

“Capital One delivered another quarter of strong financial performance as we continued to invest to grow and drive our digital transformation,” Fairbank said in a statement. “We saw credit improvement across our businesses, and growth math is now helping overall domestic credit card trends.”

Capital One has been closely watched in recent weeks, as Walmart has reportedly been in talks with the bank to take over as the issuer of its store branded cards, which would end a nearly 20-year run by Synchrony Financial. Fairbank was asked during the quarterly conference call to outline what the company looks for in a card partner and, without getting into any specifics about Walmart or anyone else, he said the bank looks for a “strong partner with strong brands and a cultural alignment and a commitment to the card program.”

He emphasized that Capital One wanted to work with a partner that was in the card business for the right reasons.

“On one end of a continuum are the partners who view the card program as the central element for building a card franchise and deepening customer relationships,” he said. “The other end of a continuum [are] partners who sort of view the card program as a profit center and we have consistently … tried to focus on the former…”

He added that how they think about the card program is critical because of the increased importance payments play in the digital eCommerce business. The decision needs to be part of a story of selectivity and discipline.

Domestic card ending loan balances were up $7.8 billion, or 8 percent, compared to a year ago. Fairbank said that improving credit trends were a significant driver of domestic card results during the quarter, as the charge-off rate fell 39 basis points year over year to 4.72 percent. The bank also reported non-interest expenses were up 7 percent, due mainly to technology investments and other expenses. He said the company continues to drive gradual efficiency improvement, driven by growth and digital productivity gain.

The company reported earnings of $1.9 billion or $3.71 a share, compared with net income of $1 billion or $1.94 a share in the year-ago quarter. Excluding adjusted items, earnings for the second quarter of 2018 were $3.22 a share.

According to Scott Blackley, chief financial officer of Capital One, the company had a $400 million gain from the previously announced sale of its mortgage portfolio, $49 million billed in its U.K. payments protection insurance customer refund reserve, and a $15 million charge related to its business divestitures.



The pressure on banks to modernize their payments capabilities to support initiatives such as ISO 20022 and instant/real time payments has been exacerbated by the emergence of COVID-19 and the compelling need to quickly scale operations due to the rapid growth of contactless payments, and subsequent increase in digitization. Given this new normal, the need for agility and optimization across the payments processing value chain is imperative.