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capital one Lehman Conference Presentation capital one Lehman Conference Presentation Presentation Transcript

  • Capital One Financial Corporation Lehman Brothers Conference
  • Forward looking statements Forward-Looking Information Please note that the following materials containing information regarding Capital One’s financial performance speak only as of the particular date or dates indicated in these materials. Capital One does not undertake any obligation to update or revise any of the information contained herein whether as a result of new information, future events or otherwise. Certain statements in this presentation and other oral and written statements made by the Company from time to time, are forward-looking statements, including those that discuss strategies, goals, outlook or other non-historical matters; projections, revenues, income, returns, earnings per share or other financial measures for Capital One and/or discuss the assumptions that underlie these projections, including future financial and operating results, and the company’s plans, objectives, expectations and intentions. To the extent that any such information is forward-looking, it is intended to fit within the safe harbor for forward-looking information provided by the Private Securities Litigation Reform Act of 1995. Numerous factors could cause our actual results to differ materially from those described in forward-looking statements, including, among other things: general economic and business conditions in the U.S. and or the UK, including conditions affecting consumer income, spending and repayments, changes in the credit environment in the U.S. and or the UK, including an increase or decrease in credit losses, changes in the interest rate environment; continued intense competition from numerous providers of products and services that compete with our businesses; financial, legal, regulatory or accounting changes or actions; changes in our aggregate accounts or consumer loan balances and the growth rate and composition thereof; the amount of deposit growth; changes in the reputation of the credit card industry and/or the company with respect to practices and products; the risk that Capital One’s acquired businesses will not be integrated successfully; the risk that synergies from such acquisitions may not be fully realized or may take longer to realize than expected; disruption from the acquisitions making it more difficult to maintain relationships with customers, employees or suppliers; the risk that the benefits of the Company’s restructuring initiative, including cost savings, may not be fully realized; our ability to access the capital markets at attractive rates and terms to fund our operations and future growth; losses associated with new products or services; the company’s ability to execute on its strategic and operational plans; any significant disruption in our operations or technology platform; our ability to effectively control our costs; the success of marketing efforts; our ability to recruit and retain experienced management personnel; changes in the labor market; general economic conditions in the mortgage industry; and other factors listed from time to time in reports we file with the Securities and Exchange Commission (the “SEC”), including, but not limited to, factors set forth under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2007, and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2008. You should carefully consider the factors discussed above in evaluating these forward-looking statements. All information in these slides is based on the consolidated results of Capital One Financial Corporation. A reconciliation of any non-GAAP financial measures included in this presentation can be found in the Company’s most recent Form 10-K concerning annual financial results, available on the Company’s website at in Investor Relations under “About Capital One.” 2
  • Capital One continues to execute against the vision of national lending and local banking • $92.4B in deposits1 – 14th largest depository institution in the U.S.2 Local Banking – Full service banking in the New York metropolitan area, Louisiana and Texas • $44B in Local Banking managed loans • $102B in National Lending managed loans National Lending • 5th largest credit card issuer3 1) Total Deposits of $92.4B, including brokered deposits 3 2) Deposits total as of Q2 2008; ranking as of Q1 2008. Ranking includes domestic deposits. 3) VISA, MasterCard, Amex, Discover reported domestic Outstandings, Q4 2007
  • Capital One delivered an operating profit of $463M despite significant cyclical credit headwinds Net Income from Continuing Operations ($Millions) Q208 Q108 Q407 Q307 Q207 National Lending US Card $ 340.4 $ 491.1 $ 498.7 $ 626.8 $ 592.9 Auto Finance 33.6 (82.4) (112.4) (3.8) 38.0 International 33.7 33.3 54.7 47.4 18.2 SUBTOTAL 407.6 442.0 441.0 670.5 649.1 Local Banking 67.1 75.8 103.6 195.5 154.8 Other (12.2) 114.6 (223.0) (49.6) (36.3) Total Company 462.5 $ 632.6 $ 321.6 $ 816.4 $ 767.6 $ 4
  • Three key decisions we have made position Capital One to navigate cyclical challenges and deliver value over the cycle Risk Choice of Banking Management Businesses 5
  • Institutions and markets will be hit differently U.S. 30 Day+ Delinquency Rate Indexed to Q1 1998 Mortgage-Related Commercial Other Consumer 250% 250% 250% 200% 200% 200% Mortgage C&I 150% 150% 150% Card 100% 100% 100% Auto CRE 50% 50% 50% Home Equity 0% 0% 0% 1998Q1 2000Q1 2002Q1 2004Q1 2006Q1 2008Q1 1998Q1 2000Q1 2002Q1 2004Q1 2006Q1 2008Q1 1998Q1 2000Q1 2002Q1 2004Q1 2006Q1 2008Q1 6 Sources: FFIEC Consolidated reports of Condition and Income, Equifax
  • The credit card industry is structurally very attractive Rational Resilient • High margins • Originate-to-retain risk mentality • Ability to re-price for safety and soundness • Meaningful barriers to entry • Diversified across millions of small loans • Small number of rational players • Variable cost origination infrastructure • Limited auction • Not dependent upon collateral risk 7
  • Relative to other asset classes, credit cards are holding their own Credit Card Industry Auto Loan Industry Mortgage Industry 8% 8% 8% 7% 7% 7% Charge-offs Charge-offs 6% 6% 6% 5% 5% 5% 4% 4% 4% 3% 3% 3% ROA ROA 2% 2% 2% ROA 1% 1% 1% Charge-offs 0% 0% 0% -1% -1% -1% -2% -2% -2% -3% -3% -3% 08 20 7 08 20 7 20 6 1991 1992 1993 1994 1995 1996 1997 1998 2099 20 0 2001 2002 2003 2004 2005 2006 1992 1993 1994 20 5 1995 1996 19 7 98 2099 2000 20 1 02 20 3 04 0 0 0 0 0 9 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 19 19 19 20 20 Note: For auto, ROA and charge-offs are a weighted average between COF and AmeriCredit for 2000-Q3 2005 and COF, AmeriCredit, and JPM Chase for 8 Q4 2005-Q4 2007 Sources: Company filings, FDIC, Visa profitability study, FFIEC Consolidated reports of Condition and Income (seasonally unadjusted)
  • Paradoxically, the least secured lending tends to be the most resilient Collateralized by Collateralized by Unsecured Depreciating Appreciating Assets Assets Assets Charge- Peak to trough of 1.9x Peak to trough of 3x • • Peak to trough of 1.7x • Offs: – ~Every 5-7 years – ~Every 20 years – ~Every 5-7 years Ability to pay Retention/appreciation of • • Ability to pay • Underwritten asset value Based On: Expected depreciation • 9
  • Our approach to risk management has served us well Rigorous Assume Save Repricing Lower Empirical Recessions and for Safety and Lines Testing Degradation Soundness • Don’t assume it in underwriting • Don’t use it during good times 10
  • We’ve transformed Capital One into a diversified bank with significant deposit funding Managed Liabilities Managed Loans $176B $180 $160 $150B $160 $140 Banking(1) $44 $140 $83 $120 $106B $120 $111B Deposits Global $100 Financial $29 $100 Services $80 $80 Auto $33 Other $25 $60 Loans $60 Unsecured $11 $40 $40 U.S. Credit $22B $52 $20B Cards $20 Securitization $49 $20 $0 $0 1999 2005 2007 1999 2005 2007 Baa3 Moody’s Rating Baa1 A3 (1)Banking includes: legacy North Fork, Hibernia loans 11 Note: 2007 loans excludes those held in “Other” category from closure of Greenpoint
  • We continue to maintain ample liquidity Quarterly Highlights • Liquidity of 5x next 12 months of Readily Available Liquidity $B capital markets funding plan 35 $33B 12-Month Forward Capital Markets Issuance Plan • $5.5B Holding Company cash covers Undrawn FHLB 30 Capacity parent obligations for over 2 years, including current dividend 25 • Quarterly funding favored deposits Undrawn 20 Conduit – $4.7B net deposit growth – $2.6B AAA US Card ABS 15 • Increased investment portfolio by $3B to $25B Unencumbered 10 Securities – Highly liquid, low risk assets – No SIV’s, CDO’s, leveraged loans 5 – No exposure to equity or hybrids 0 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 Q208 12
  • Despite economic headwinds, we remain capital generative Tangible Common Equity to Tangible Managed Assets Ratio • Continue $0.375 quarterly dividend 8% 6.80% 7% 6.18% • Share buybacks unlikely until 6% economic outlook improves 6.03% 5% • Expect TCE ratio to remain above 4% target range of 5.5%-6.0% 3% • Tier 1 risk-based capital ratio of 2% 11.4% (estimated) 1% 0% Q107 Q207 Q307 Q407 Q108 Q208 13
  • Despite continuing economic headwinds, Capital One remains well positioned to deliver value through the cycle Strong Position Decisive Actions • Resilient businesses • Pulled back on loan growth across lending businesses – Tightened underwriting across lending businesses • Conservatism imbedded in underwriting decisions • Retrenching and repositioning Auto Finance • Banking transformation • Pulled back or exited least resilient businesses – Fortified funding and liquidity • Recalibrated underwriting models and approaches – Strong capital position • Increased collections intensity – Broad funding flexibility • Enhancing and leveraging strong balance sheet • Managing capital with discipline 14