Capital One 4Q15 Earnings Call Notes

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Richard Fairbank

Expect allowance build driven by loan growth

“Loan growth coupled with our expectations for rising charge-off rates drove an allowance build in the quarter. And we expect allowance additions going forward, primarily driven by growth”

We’ve been flagging underwriting practices in the subprime marketplace for a long time now

“the auto story is the same story we’ve been saying for quite some time. So for at least a year now we have been flagging that in the subprime marketplace we see practices that are inconsistent with where we want to go from an underwriting point of view and we raised the flag about that in our call’

Card industry octane has revved up in recent years

“The other thing about the card industry, I think is worth pointing out is what’s happening with just sort of industry growth. So, industry-revolving debt for most of 2012 and 2013 it held steady at about 1% year-over-year growth and then it maintained sort of little over a 3% growth since July of 2014 and then recent months, it has been over 4%. So that’s certainly getting a little bit more octane there. And bank card outstandings are up 4.6% year-over-year. I think overall if I pull way up about the credit card marketplace, I think it’s a generally rational marketplace”

Have seen a slight uptick in delinquencies in energy affected geographies

“when we look at these geographies, places like Houston, parts of North Dakota, Alberta Province and Canada, we do see slight upticks in card delinquencies. And where appropriate, we’ve taken steps to surgically tighten our underwriting in these geographies, although we want to be careful not to over-react to these very modest effects.”

Most indicators of the real economy continue to look pretty strong

“let me say this about the health of the consumer. First of all, there has obviously been turmoil in the markets recently, including concerns about the global economy, especially China and closer to home concerns about the potentially disruptive consequences of falling oil prices. Having said that, most indicators of the “real economy” at least in the US continue to look pretty strong. We’ve seen sustained improvement in labor markets in recent months and steady home price growth. Consumer confidence remained solid. And as we talked about earlier, falling energy prices, while they will stress certain sectors and certain geographies, they will also directly benefit consumers. And if anything, I feel, it would probably be a net positive for the overall health of the consumer.”

We’re not seeing anything that is cause for concern in our own portfolio

“Of course, our most reliable view, Brian of consumers comes from our own portfolio from direct indicators of consumer behavior like payment rates and purchase volume, and from leading edge credit indicators like delinquency flow rates. These indicators all look consistent with our views of seasonality and growth math, and they are not giving us cause for concern. Obviously, the economy is something of a wildcard, and as the turmoil we’re seeing in financial markets spills over into the real economy, we would expect that to show up in our credit metrics eventually. But we’re not seeing any indications of that now.”

Steve Crawford

CCAR hamstrings banks ability to return capital

“Look, we’re not going to speculate too much about what’s going to happen going forward. I do think it’s worthwhile pointing out, remember that we have a CCAR plan that’s been approved through the second quarter of 2016. So, there is not really a tremendous amount of flexibility outside of what’s already been approved, some, but not a lot.