Capital One missed earnings estimates by a mile as Credit Card Charge-Offs Jump 30%
What’s in your wallet?
Capital One Financial Corp. reported a 20% drop in first-quarter net income from a year earlier as losses jumped for U.S. credit cards and the bank took a bigger provision charge for credit losses.
The firm, known for its big presence in the subprime credit-card market, reported net income of $810 million for the first quarter, or earnings per share of $1.54. Excluding an item pertaining to a U.K. insurance customer refund reserve, the bank reported net profit of $910 million and earnings per share of $1.75.
Even so, the result badly missed Wall Street forecasts. Analysts had expected $937.5 million in net income and earnings per share of $1.92. Revenue of $6.5 billion also fell short of expectations.
The bank, often looked at by analysts as a gauge of consumers’ ability to pay back their debts, reported that domestic credit-card net charge-offs reached 5.14% in the first quarter. The was up from 4.16% a year prior. The companywide provision for credit losses jumped 30% from a year earlier to $1.9 billion.
Chief Executive Richard Fairbank said the bank raised its outlook for full-year, domestic card charge-off rates to the high end of a 4%-to-around 5% range.
“Against this backdrop, we have been tightening our underwriting,” he added. “We still see growth opportunities in our domestic card business, but our growth window is gradually getting smaller.”
In one other area of concern, auto-loan performance, Mr. Fairbank also struck a cautious note. Used-car values have been declining, based on some indexes, resulting in higher losses for some auto lenders.
Consumers Stretched
Despite glowing jobs reports and glowing wage growth (if you believe mainstream media on both ideas), it appears consumers are having a little bit of difficulty paying the bills.
No worries mate. Consumers deleveraged during the great financial crisis. Didn’t they? I happen to have a picture.
Minimum wages are rising, Amazon is killing brick-and-mortar stores, retail sales are slumping, auto sales are slumping, and used car prices are tumbling.
Apparently, home building and home flipping are all it takes to keep the economy humming.
Didn’t we try this once before?
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Mike “Mish” Shedlock
It’s the wheel of the world turning around
It’s the wheel of the world turning around
And around
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Someone has to take the hit. With escalating health insurance and Obamacare’s individual mandate increasing on top of everything else, not surprising that subprime credit card companies feel the pain. But Capital One is still earning a nice chunk of cash, almost a billion dollars a year even as their customers default in greater numbers. But still too much economic growth, says the Fed. Cutting payroll taxes (Social Security tax) would help subprime customers more than other “tax” cuts.
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Ouch.
Bankster panties must be in a bunch to say they will be “tightening…underwriting”.
But is it: “Better late than never” ?
Or “Closing the stable door after the horse has bolted.” ?
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Canadian subprime mortgage lender Home Capital Group is facing a liquidity crisis. Its stock cratered 61% today. Many other home lenders’ stock also took double digit decline. Is this the precursor of the next financial crisis?
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Interesting.
Two big banks about to trip over the edge within two days.
Kinda out of nowhere.
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There is nothing sudden or “out of nowhere” about any of this.
You knew (unless you had your head up your backside) that the economy had way too much debt back in 2007 — TEN FRIGGIN YEARS AGO.
Artificially manipulating interest rates lower delayed a default, but was never going to solve anything. Central bankers lied, and too many people wanted to be fooled.
Total system debt levels are currently much higher than they were in 2007, the economy is the same size (maybe a bit smaller), and far more money is being embezzled to pay for health costs and free loaders.
Putting Fed Funds back down to zero isn’t going to make this situation better — zero rates will, AND DID, make things worse
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Exactly…made things worse for everyone except the day traders who have run the phony stock market into the stratosphere…while savers earn nothing on money they earned and carefully saved…you know, the “old fashioned, responsible way”.
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The mother of a family friend died recently, she was over 90 yrs old.
She had two life insurance policies, both of modest amount $25K or something like that. The friend was saying how much runaround he was getting from these life insurers to pay off the policy. Very large, well known brand name companies and it was like pulling teeth to get these pikers to pay up. Two smallish policies from a 90 something yrs old policyholder and it was likely going to crush their souls to make good on them.
She lived that long of time before they had to pay anything, surely they made something on those policies? I get the feeling these insurers are hurting after so much ZIRP. Maybe way more than is known.
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The policy of that 90yr old that you speak of probably was one of the few profitable policies the life insurance company had.
Imagine all the policies written when we had a halfway honest Fed (basically during Paul Volcker’s term). Those policies were underwritten assuming 8-9% interest rates.
Now the companies are being robbed by Greenspan, Bernanke and Yellen — and Mish sits there acting like ZIRP is a good thing (and the Fed should never normalize interest rates).
I’ve been commenting for a long time that the Fed’s policy basically amounts to stealing from retirees / savers and giving to deadbeats (not just the bankers). Mish just responds with another silly post about how the economy keeps getting worse the more in debt we go, and thus the Fed can’t raise rates.
At some point, people are going to have to admit that robbing savers to keep the welfare state going is the road to disaster.
The Fed will keep normalizing interest rates, and p!ssing off Mish, or else the whole country goes the way of Venezuela. Savers can only be punished for so long, and then they will stop investing completely.
No savings ==> no investment ==> no jobs ==> no tax base. It really is so simple even a math challenged liberal should be able to get it.
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Its The Road To Serfdom by Friedrich von Hayek,
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” Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.”
W.B. Yeats-The Second Coming
When this goes, it will not be pretty. Do you think this means Cap1 will increase my interest rate? 😉
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There is no center between the socialists that want to enslave the population to rule over them and those that want to remain free.
See Venezuela for the most recent example of no center.
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And mere anarchy is loosed upon the world.
Yes, I know. I sometimes open my eyes.
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At what point do lending criteria tighten?
Cutting payroll taxes etc is all well and good but not if it just leads to more lending to those considered sub-prime if criteria remain the same.
Brick wall here we come.
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Lending criteria will never tighten, as long as too-big-to-fail institutions stand as willing buyers of subprime debt at a discount; knowing that they are, tah-dah, too big to fail. Hence will be bailed out.
So, in practice, lending criteria will tighten once the biggest banks are allowed to fail without intervention. First the most exposed, then that one will take the rest down with it. Of course they’ll all scream about nonsense like tanks in the street, and system collapsing, and hobgoblins and scary muslim virgins and Mexicans who pay Chinese slave wages….. and whatever other nonsense the indoctrinati has been indoctrinated like Pavlov dogs to be scared of.
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Bankers confiscating people’s stuff by printing, and lending their own stuff back to them, is silly. It just makes people debt slaves to bankers. Bankers and their allies get rich. The people slowly move backward as bankers confiscate their stuff.
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Bubbles popping….
Obama bailed them all out under his rule..
Will Trump? I give it 50/50.
Canada will bailout everyone of their banks.
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Trump’s tax plan is a bail-out since there is no guarantee tax savings will trickle down to employee compensation.
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What’s in your wallet?
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It’s ours.
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The over-indebted consumer economy can’t walk more than a few steps without wheezing and doubling over — and it doesn’t matter that Fed Funds remain more than 100bp below stated inflation and have been essentially zero for a decade.
No recovery, no tax cuts, no effective government until debt is reduced and the tax code stops favoring debt over savings. No action by the Fed can change this.
Just a matter of time before one of the brighter (less dim?) bulbs on Wall Street figures out the people who actually make Treasuries “risk free” and the people who aren’t paying credit cards / mortgages — are one in the same group.
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Seems like its not even a decade since the last cycle of bad credit. Banks are always using a rear view mirror with regard to charge off and default rates. They’ll argue for looser underwriting using that same criteria. It’s like a dog chasing his tail
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Auto loans, student loans, home equity loans and credit cards have fueled this economy much as nitrous oxide fuels a dragster. The debt bubble is at unsustainable levels.and beginning to deflate. At the corporate level look at the numerous retailers collapsing under the weight of private equity debt.
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Gee, where did I see this foolishness before? Oh yeah-Bank One, when their First USA division posted horrible numbers and Bank one stock lost 20% of its value in one day way back in 1999. Oh boy, the stories we could tell…..
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Looks like maybe it won’t be so long before we find out what “Whatever it Takes” entails. Possibly the Fed hitting the “Infinite Improbability Drive” Button?
How much longer can the manipulators maintain confidence in their “Potency” ,,,,,,,
http://www.acting-man.com/?p=243/
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“…if you believe mainstream media…” — Why would you ever?
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And higher interest rates will only make this worse. Much worse.
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“Capital One missed earnings estimates by a mile as Credit Card Charge-Offs Jump 30%”
…
I’m sure of this due to refinancing window slamming shut with interest rate increase.
I know several loan officers who talk of serial refi-ers. Run up $10K to $20K on the credit card —-> then (cash out to pay off cc) refinance of mortgage as home values rise and interest rates dropped (or stayed level).
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With the king of bankruptcy in the WH, I think the fix is in. This is the reason why at the margin housing bubble loans are impacting the bottom line at CCs like Cap One. Qualified buyers can use line of credit loans at their bank (Chase) or portfolio loans with the guarantee of no mark to market, since all future market drops are flash crashes, tech glitches, you will never get a margin call.
The world does not end here, no it is just starting.
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