Capital One Financial 3Q15 Earnings Call Notes

Third quarter has always been seasonal low point

“The third quarter has always been our seasonal low point. As a reminder, all else equal, seasonality results in increasing charge-off rate in the fourth quarter, rising the peak charge-off rate in the first quarter. This pattern has been particularly pronounced for the last couple of years and we expect that to continue.”

Continued to see aggressive underwriting in subprime

“In the third quarter, we continued to see aggressive underwriting practices by some competitors, particularly in subprime. We continue to lose some contracts to competitors who are making more aggressive underwriting choices.”

<$1B in taxi medallion loans

“Our taxi medallion loan portfolio is less than $1 billion in loans. In the face of growing competition from Uber and other entrants, taxi medallion values continue to be under pressure and we continue to closely manage risk in this sector.’

New loans will have a higher loss expectation as old loans were seasoned during the great recession

“the back book is made up mostly of customers who weathered the great recession, and it’s also exceptionally seasoned as a result of low levels of originations over many years. So from the starting point of that back book, now almost any new business that we originate of course will have higher losses.”

There’s been pickup in growth, but not seeing people stretch like in the ’00s

“people stretching in terms of credit risk and so on. It’s what we saw again in the mid-00s. So I wouldn’t say we see anything like that at this point, but I think it’s good for you to make note that there has been a bit of a pickup in terms of balances and we’ll have to see where that goes.”

Growth math is that losses build in first two years and then settle. Will start to build in 2016 and ’17

“But I think that the main point that I wanted to make is just the way growth math works. It’s in the first two years after – for any vintage of growth, where the losses are climbing. And then they settle out and actually ultimately go down in any one sort of vintage of growth. So, all of this is the math of some things going and after they – so for example, as we get towards the latter part of 2016 and into 2017, some of the early growth vintages will be starting to settle out and you still have the effects of course of some of the more recent growth that we hope happens over the course of next year, for example.”

More risk being taken in subprime than we’re comfortable with

“in subprime most importantly some of the lending practices that we see that where I think more risk is being taken than we are comfortable to take to win a particular piece of business and that’s really what we’re flagging there.”

A lot of planets aligned for us to get the GE healthcare business. “You could measure in decades” the number of times that an opportunity like that comes along

“It’s very unusual thing to be able to, in an acquisition at an attractive price, get someone that is like the leading and just absolute amazing performers that somebody like GE Healthcare business is. So a lot of planets aligned for us to get that. It is a byproduct of as I’ve said we watch the marketplace and look for opportunities, but as you can see over the last number of years, we done more looking than we have buying anything. But I think the GE business represents a very special opportunity that arises, but it is a very unique thing. I don’t think – I think it is you could probably measure in decades the number of times a business comes along with such a good business and a market leading position where that can be obtained at a reasonable price. “