Capital One 2Q16 Earnings Call Notes

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Capital One Financial Corporations’ (COF) CEO Richard Fairbank on Q2 2016 Results

Purchase volume up 14%, loans up 13%

“Growth of loans and purchase volume remained strong, although growth decelerated modestly. Compared to the second quarter of last year, our ending loans grew $9.6 billion or about 12%. Average loans were up $10.1 billion or about 13%. Second quarter purchase volume increased about 14% from the prior year.”

Competition picking up

“Competition is picking up across the domestic credit card market from the rewards space to subprime. Overtime this can have impact on the growth opportunity and even credit quality in the business. While we always watch vigilantly for these effects, we continue to find attractive growth opportunities in the parts of the market we’ve been focusing on for some time.”

Repurchasing $2.5B of stock over next four quarters

“The Federal Reserve did not object to our capital plan, so we expect to maintain our dividend and repurchase $2.5 billion of stock over the next four quarters.”

A loan vintage seasons over two years

“The growth math of a particular vintage has most of its impact over the two years following that, and then there is really a seasoning from there and so this is really just the net seasoning math of all the different vintages and the size of those.”

underwriting concerns about competitor practices may be mitigating somewhat

“So at the top of our worry list is underwriting practices, because that not only affects volumes as we pull back, but it also can so quickly make its way in to credit quality and not only for those doing those practices, but it can ripple effects on the industry. So it’s a top of our list, its concerns has been competitors practices, and we have lagged particularly in the subprime area some concern about that. That as I mentioned is actually looks like its mitigating somewhat, I don’t want to declare victory on that, but that’s a positive here and we’ll keep an eye on that.”

Just about anything that really creates value involves digging a hole before the benefits come

” I found over the many years in building Capital One, just about anything that’s really value creating involves digging a hole before the benefits come. If it weren’t that way, everybody would rush in and do it and actually would kill the opportunity. We have many years of experience in studying credit and understanding how value gets created overtime by origination.”

We are bullish about the growth opportunity

“I think for those who know me, how I try to operate in this thing. It’s less about signaling and more about just describing what we see and sharing with you what are the – so what’s of that. So I start with, we are very bullish about our growth opportunity. It is factual matter that the growth rate is down over some of the highs of the last couple of quarters on a year-over-year basis, but we’re continuing to have pretty significant and to us very attractive growth.”

Competition is increasing, and growth rate in subprime is actually higher than in prime

“we are very obsessive about how competition works. So often people always talk about well what’s the economy doing and how big is the opportunity. Number one on our list is, what is the nature of the competitive environment, and that of course in its most first order effect effects growth itself. So it is noteworthy that competition from rewards all the way down to subprime despite sometimes protestation of folks that they don’t do subprime there is an increase and in fact the actual growth rate in subprime by our tally industry is actually higher than in prime. And you can see in the overall revolving debt numbers, growth is up.”

Competition has been increasing in a creeping fashion

“This competition, by the way there’s not like some big thing that happened in the last quarter. This is a creeping increase in competition, it’s primarily by the biggest players in the business who in fact definitionally dominate the business. So you’ve seen some increased competition in the reward space, you’ve seen some competitors strengthen some of their rewards proposition, value propositions”