The financial woes that have been predicted for credit card companies appear to be coming true. Capital One recently posted its third quarter report and the news is not good. It seems that the financial company posted a net loss this quarter after having taken in over $800 million worth of charges from its GreenPoint Mortgage company.
According to the report, the delinquencies on credit card loans in the United States increased significantly. As a result, the company experienced a decline in its shares during after-hours stock trading. In all, the company reported a net loss of $81.6 million, which equated to about 21 cents per share. Compare that to this time last year, at which time the company had a profit of $587.8 million or $1.89 per share, and it is easy to see why many investors are feeling concerned.
In response to its financial hardships, the company will be writing off even more loans, particularly in the United States. Yet, CEO Richard Fairbanks maintains that the losses are normalizing and are not an indicator of serious credit problems. Furthermore, he claims the increase in charge-offs was due to the fact that previous credit card charge-offs had been lower than usual.
“What is worsening versus normalization?” Fairbanks asked. “It’s a bit of an art form.”
With little explanation of the true difference, many investors are left scratching their heads. Still, Fairbanks claims that the assets for Capital One are performing consistently with what the company had forecast and maintains that it is seeing very little impact resulting from the mortgage crisis.
Despite Capital One’s insistence that all is fine, investors are keeping a close eye on earnings and charge-offs in order to determine if the subprime mortgage crisis has found its way to other types of consumer debt. Capital One had already announced in August that it would be shutting down the GreenPoint Mortgage lending business in response to the downturn in US housing. In all, Capital Ones shares have plunged 14% this year in response to credit concerns.
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