Capital One (NYSE:COF) reported $411 million net income for Q4 2011, down 52% from $965 million in the prior quarter and 41% from $701 million in the year-ago quarter. Total revenues for the fourth quarter stood at $4.05 billion, down 3% from the prior quarter but up 2% from the year-ago quarter. The company reported 25% increase in its non-interest expenses in Q4 which significantly affected its profits. Capital One is the fifth largest bank in the U.S. and expects to close the ING deal and the purchase of HSBC Holdings Plc’s U.S. credit-card portfolio this year. It competes with Discover Financial Services (NYSE:DFS), Bank of America (NYSE:BAC), JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C) and American Express (NYSE:AXP).
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Growth in loan volumes
Capital One’s domestic card loans balance grew by about $3 billion or 5% in the fourth quarter driven by holiday spending and the firm’s growing customer base. New accounts opened in the fourth quarter of 2011 were more than double the new accounts opened in the fourth quarter of 2010 and growth in Capital One’s purchase volume outpaced the industry in 2011. Capital One posted 15% growth in its purchase volume in Q4 2011 compared to Q4 2010. The expected acquisition of HSBC’s credit card portfolio will further boost Capital One’s loan balance in 2012.
Although the loan balance increased in the fourth quarter, the net interest margin declined by 17 basis points (bps) to 7.22% compared to the prior quarter but grew 2 bps year-over-year. The fall in net interest margin was due to the decline in loan yields which more than offset the benefit from lower funding cost.
Expenses needs to be controlled
As Capital One prepares itself for two big acquisitions, it incurred few one-time expenses which drove its non-interest expenses higher in Q4 2011. The company spent more on marketing, salaries, infrastructure and technology systems in order to expand its capacity to accommodate millions of new customers after the acquisitions. However, Capital One still needs to keep a check on its expenses as loan growth could slow down due to financial reforms and a stricter lending environment.
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