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Capital One Financial (COF)

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Latest Earnings

In Q1 2019, Capital One’s revenues grew by 2.5% Y-O-Y to $7.08 billion. The increase was primarily driven by growth in Non-Interest Revenues and Interest-Earning Assets, partially offset by a 10 bps drop in Net Interest Margin (NIM). Operating Expenses surged by 3% Y-O-Y due to jump in Marketing Costs and Professional Services Costs. However, Marketing Costs fell 38% Q-O-Q due to seasonally elevated marketing costs in the fourth quarter of previous year.

Outlook for FY 2019

We expect Capital One’s revenues to grow by 3% on the back of improvement in Non-Interest Fees Revenue and Interest-Earning Assets. Further, the launch of Walmart Credit Card is likely to boost Card revenues. Correspondingly, Operating Expenses is expected to increase by 5% due to moderate surge in Compensation Fees and Marketing Costs.


Below are key drivers of Capital One's value that present opportunities for upside or downside to the current Trefis price estimate for the bank:

Credit Cards

  • Provisions % of Outstanding Credit Card Loans: Capital One's credit card provisions increased from 4.7% of the outstanding loan portfolio in 2007 to 8.3% in 2009 before declining to 3% by 2011. Major acquisitions pushed this figure to 5.1% for 2012 before Capital One's decision to run-off and sell some of the loan portfolios helped provisions to fall to below 3.5% in 2014 before jumping to 5.9% by 2017. In FY 2018, it reported provisions of 4.5% which we estimate to normalize at around 5% over our forecast period, should the division perform worse than expected in coming years, the provisions could increase to 6%. If that were to occur, there would be a downside of 16% to the Trefis price estimate. On the other hand, if the bank focuses on improving credit quality of its loan portfolio, and the provisions reduce to 4% of the loans over the same period, then this would represent a 16% upside to the Trefis price estimate.
  • Net Interest Yield on Credit Card Balances: Capital One's net interest yield on its credit card portfolio has remained around 13% over recent years, and we forecast it to remain at that level over the rest of the forecast period. However, if the yield figure falls to 12% for this period, then there would be a downside of about 8% to the current price estimate.


Capital One is one of the largest banks in the United States, whose banking and non-banking subsidiaries market a variety of financial products and services. The corporation's principal subsidiaries include Capital One Bank (USA) and National Association (COBNA) which currently offer credit and debit card products, other lending products, and deposit products; and Capital One, National Association (CONA) which offer a broad spectrum of banking products and financial services to consumers, small businesses and commercial clients.

Big-Ticket Acquisitions

In June 2011, Capital One bought the American banking operations of ING Direct for $9 billion which significantly boosted Capital One's consumer and commercial loans portfolio.

Capital One also agreed to buy the United States credit card business of HSBC Holdings for $2.6 billion which boosted Capital One's credit card loans by more than $30 billion. The company is also expected to realize cost saving of about $350 million from the business combination.

In late 2015, Capital One acquired GE's healthcare financing unit - adding $8.5 billion in healthcare loans to its total portfolio.


The Credit Cards division is the main source of value for Capital One for the following reasons

Largest revenue contributor

Capital One's Credit Card division accounted for 64% of the firm's total revenues in 2018 compared to 26% from the Consumer Loans division and 10% from the Commercial Loans division.


Rise in Prime Loan Interest Rates Will Benefit Capital One

As a result of the economic downturn, the U.S. government decreased the prime loan interest rate (the interest rate that commercial banks charge their most credit-worthy customers) from levels of around 8.25% in late 2007 to 3.25% in 2008. The prime rate remained at this level for more than 7 years, before a series of rate hikes by the Fed brought this figure to its current level of 5.50%. As economic conditions improve, interest rates will eventually return to historical levels, at which point Capital One's revenues will be positively impacted.

Fast Growth in Electronic, Cashless Payment Solutions

Capital One also operates in the cashless payment solution market. This includes payments using credit cards. The market for such transactions is growing at a rapid pace. Consumers are moving toward cashless transactions in large numbers, particularly in international markets where credit and debit cards are becoming more prevalent. We expect significant growth in this segment in the near future as more customers and merchants embrace credit / debit card payment solutions.

Recent Trefis Articles

How Could The Recent Data Breach Affect Capital One’s Stock?

Capital One (NYSE: COF) is one of the largest banks in the United States, whose banking and non-banking subsidiaries offer credit & debit cards, commercial lending and consumer lending products & services to retail consumers, small businesses and commercial clients. ...More

Industry Headwinds, Fallout Of Recent Data Breach To Weigh On Capital One’s Stock

Capital One (NYSE:COF) is one of the largest issuer of credit cards in the U.S. with more than $110 billion in outstanding credit card loans at the end of 2018. It provides consumer banking, commercial banking and credit card services to retail consumers, small business & corporates. ...More

Increased Card Lending, Lower Charge-Off Rates Should Have Boosted Capital One’s Q2 Results

Capital One (NYSE: COF) will report its Q2 2019 earnings on Wednesday, July 18. Consensus figures points to a 3% decline in revenues year-on-year to $7 billion, and a 23% drop in EPS figure to $2.86. Per Trefis, Capital One's stock has a fair value of $100, which is roughly 10% higher than the current market price. ...More

Capital One’s Conservative 2019 Capital Plan Hints At More Acquisitions To Come In The Near Future

Capital One (NYSE:COF) announced its decision to return $2.9 billion to its shareholders over the next twelve months as part of its latest capital return plan recently. While share repurchases are set to jump 83% compared to the previous year, quarterly dividends would remain at the same level of 40 cents per share. ...More

What Does The Decline In Net Interest Margin Over Q1 Mean For Capital One’s Fair Value?

Capital One (NYSE: COF) declared its Q1 2019 earnings late last week and the card-focused bank posted an EPS of $2.87 (outperforming the market EPS estimate of $2.30). ...More

How Have Capital One’s Revenues Trended, And What Can We Expect For Full-Year 2019?

Capital One (NYSE:COF) is expected to publish its Q1 2019 results on April 25, after the market closes. This note details Trefis’ forecasts for Capital One, as well as some of the key trends we will be watching when the company reports earnings. ...More

Capital One’s Q4 Results Saw Headwinds, But Its Shares Still Look Underpriced

Capital One (NYSE:COF) reported a worse-than-expected EPS figure for the fourth quarter despite meeting revenue expectations, as unusually high marketing expenses for the period hurt the bottom line. ...More

How Have Credit Card Balances For The 10 Largest U.S. Card Lenders Changed Over The Last Twelve Months?

After having crossed the $1 trillion mark a year ago, the U.S. card industry has grown steadily over recent quarters after nudging lower over the seasonally weak first quarter to reach $1.04-trillion in size by the end of Q3 2018. ...More

Discover Makes The Most Of Upbeat Market Conditions To Report Strong Growth In Q3 Card Purchase Volume

The six largest U.S. card issuers reported total Q3 purchase volumes of $569 billion for their retail credit cards - representing just under 61% of the total credit card purchase volume of $934 billion for the U.S. in the quarter. ...More

Should Investors Be Worried About Capital One’s Aggressive Auto Lending Push?

The strong outlook for the U.S. economy, and the ongoing trend of customers choosing SUVs, larger cars and higher-priced models to traditional smaller cars, has had a positive impact on the country's auto industry for several quarters now. However, this helped auto lending volumes, with the U.S. ...More

Is Discover’s Below-Average Growth In U.S. Card Purchase Volumes A Cause For Concern?

The six largest U.S. card issuers reported total Q2 purchase volumes of $566 billion for retail cards issued by them - representing more than 61% of the total credit card purchase volume of $927 billion for the U.S. in the quarter. ...More

Capital One’s Strong Q2, Improved Outlook Justify A $117 Price Estimate

Late last week Capital One (NYSE:COF) reported a better-than-expected EPS figure for the second quarter of the year, with the card-focused banking giant making the most of upbeat economic conditions to report a jump in revenues even as its loan losses fell sharply. ...More

Should Investors Be Worried About Capital One’s Private Label Card Losses?

The latest issue of Equifax's National Consumer Credit Trends Report revealed that private label card delinquencies jumped 57 basis points from the figure in March 2017 to reach 4.65% in March 2018 - the highest since 2013. As one of the five largest private label card issuers in the U.S. ...More

Capital One’s Decision To Get Rid Of Its Remaining Mortgage Portfolio Is Good News For Investors

Earlier this week, Capital One (NYSE:COF) inked a deal to sell its portfolio of roughly $17 billion mortgage loans to DLJ Mortgage Capital, a subsidiary of Credit Suisse (NYSE:CS) in the U.S. The portfolio sale marks Capital One's exit from the U.S. ...More

What’s Behind The Recent Fall In Capital One’s Share Price?

Earlier this week Capital One (NYSE:COF) reported a much better-than-expected EPS figure for the first quarter of the year. However, investors were unhappy with the card-focused bank's performance for the quarter, as they led its shares 5% lower on the next trading d... ...More

Gauging Capital One’s Sensitivity To The Fed’s Planned Rate Hikes

To understand how the Fed's rate hike process directly impacts the financial performance of the largest U.S. banks, we have created a series of interactive models that quantify the gains or losses in these banks' share prices, revenues and profits based on whether or not the Fed follows through on i... ...More

Why Investor Concerns About Capital One’s Elevated Card Charge-Off Rates Are Justified

Charge-off rates for U.S. card lenders were notably elevated over 2017, as card loss figures began the process of normalization from the record lows they were at over 2014-15. ...More

Capital One Forced To Reduce Share Repurchases Due To One-Time $1.9 Billion Charge From The Tax Act

Capital One (NYSE:COF) recently resubmitted its capital plan for 2017 to the Federal Reserve - six months after being singled out by the regulator as the only major bank holding company (BHC) to receive only a conditional approval for its capital return plan (see Fe... ...More

JPMorgan’s Q3 Card Purchases Up 13%, Outpacing Industry Growth

JPMorgan's growing presence in the affluent card segment over recent years, coupled with its position as the largest card lender in the U.S., has helped its card purchase volumes grow at a faster rate than any of its competitors. The largest U.S. ...More

U.S. Card Charge-Off Rates Improve In Q3, Holiday Season Likely To Lead The Figure Higher In Q4

Card charge-off rates across the industry fell in Q3 2017 after remaining elevated over the first two quarters of the year, and the largest U.S. card lenders benefited from this trend to report a sequential decline in their card loan charge-offs. ...More

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