Capital Punishment for Cap One?
With the United States Trustee investigating Capital One for filing false and fradulent proofs of claims in thousands of Chapter 13 cases, and with hundreds of my Boot Camp graduates reporting such claims back to me, the attached article in Forbes about the financial condition of the business certainly raises some eye brows. My late Uncle Ralph, who as a lawyer-lobbyist in Washington, always told me to follow the money in any case and I would eventually find all of the asnwers. I might not have all of the answes on the Cap One Claims but we certainly are smelling something caclled “motive!”
Capital One’s Capital Loss Evelyn M. Rusli, 11.07.07, 2:57 PM ET
The subprime blowup continues to weigh on Capital One Financial.
In a Tuesday filing, the financial services company said its losses will be larger than expected in 2008, due to rising deliquencies and home foreclosures. Although the housing sector’s health remains uncertain, the company stands to lose roughly half a billion more than previously forecasted.
The news apparently disturbed investors: Shares of Capital One plunged 11.9%, or $7.09, to $52.35 in afternoon trading.
Like many on Wall Street, and the Federal Reserve, Capital One underestimated the duration and severity of the mortgage meltdown. With no bottom in sight, housing and financial players are buckling in for a difficult 2008.
“We didn’t quantify the uncertainty associated with our elevated delinquencies and we didn’t quantify the potential if the housing market were to continue to degrade,” the company’s chief risk officer, Peter Schnall, was quoted as saying in a frank statement.
Previously, the company forecasted $1.2 billion in charge-offs for the fourth quarter, and $4.9 billion for 2008. While the company maintained its fourth-quarter forecast, it now predicts that its losses for next year will be between $4.9 billion and the “mid $5 billions.” The new estimates reflect the possibility that elevated rates of credit card delinquencies will persist and not improve during the fourth quarter, as Capital One had originally assumed, and that the housing sector will go through “substantial degredation,” Schnall said.
The revisions prompted multiple downgrades. A Keefe, Bruyette and Woods analyst downgraded the company to “market perform” from “outperform.” Meanwhile a Lehman Brothers analyst dropped his price target to $70 from $72, and a Friedman Billings Ramsey analyst dropped his target to $55 from $75.
It has certainly been a rough year for Capital One. In August, the company was forced to close its wholesale mortgage banking business and slash 1,900 jobs to reduce its exposure to the risky mortgage market. However, unlike some mortgage players, Capital One is a diversified company, with four primary segments: U.S. consumer credit cards, auto finance, global financial services and banking. Nevertheless, weak economic growth and rising home loan delinquencies and foreclosures, will weigh heavily on the company’s businesses.
Capital One is not alone. Many financial players received downgrades on Wednesday. A RBC Capital Markets analyst downgraded IndyMac Bancorp to “secotr Perform” from “Outperform” while a Sandler O’Neill analyst downgraded Wachovia to “hold” from “buy.” Shares of IndyMac plunged 14.5%, or $1.81, to $10.68 in afternoon trading.
