Capital One Unadjusted Charge Off Rate Hits Record 9.91%

A number you won't hear much about on CNBC: Capital One's official annualized U.S. credit card net charge-off rate hit 9.41% for May, however as footnote (1) advises, the real charge-off rate was actually 9.91%, a record for the company. Companies will fudge anything and everything for even 30 days worth of green shoots - in the meantime Ken Lewis will upgrade the stock and issue 3 equity follow-ons while State Street orchestrates a short squeeze. From the footnote:

A change in bankruptcy processing resulted in an improvement in the U.S. Card charge-off rate that is reflected in the May results. The impact was approximately 50 basis points. While our internal guidelines require bankrupt accounts to be charged off within 30 days, our practice had been to charge off customer accounts within 2 to 3 days of receiving notification of bankruptcy. Due in part to an increase in the volume of bankruptcies, we have extended our processing window to improve the efficiency and accuracy of bankruptcy-related charge-off recognition. The new process remains within Capital One’s internal guidelines, as well as FFIEC guidelines that bankrupt accounts must be charged-off within 60 days of notification.

Just a reminder that a mere 3 months ago the charge off rate was just over 8% - a 20% deterioration in 12 weeks and accelerating.



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Capital One Misses, Stock Should Hit $1000 Tomorrow

Reported loss of -$0.39 EPS on -$0.08 consensus. Managed revenues fell 18.6% year-over-year to $3.73 billion, missing consensus estimates of $4.17 billion. The company reported a Tier 1 capital ratio of 11.4% and a tangible common equity ratio of 4.8%. Capital One added a $124.1
million allowance for loan losses.

The credit card company has chosen not to specifically update its outlook for managed charge-offs given "significant uncertainty in the economy." What is the problem with that - the investing public surely would completely condone (and welcome) any and all optimistic lies at this point.

Of course if one removes the loss provisions, all is good. That would assume nobody will ever be delinquent on their credit card payments again...But it would be in line with the accounting rubbish that all big banks have been feeding their flux capacitors to pretend they can go back in time to 1985 when the silent majority actually believed a word of what they said.

The company added $124.1 million to allowance for loan losses in anticipation of higher expected charge-offs in 2009. Allowance as a percent of reported loans increased 36 basis points in the first quarter of 2009 to 4.8 percent. The coverage ratio does not include the $9.5 billion of Chevy Chase Bank loans that were added to the balance sheet in the first quarter.

Too bad they need to provision for roughly double that to catch up with reality. Sphere: Related Content

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Capital One Card Charge Offs Hit 9.33% Annualized

Some very ugly credit card charge-off data just out from Capital One. The February annualized rate of 8.06% has spiked by over 1% month-over-month to the current 9.33%, a very troubling deterioration, especially as to what it may portend for delinquency data from bigger brothers such as AXP, but also for the credit card securitization market as well as for upcoming rating agency actions on not just this name, but the entire credit card industry. But at least the TED spread is down.

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