Capital One Falls as Profit Misses Analyst Estimates (Update1)

July 18 (Bloomberg) -- Capital One Financial Corp., the credit-card lender that expects as much as $7 billion in soured loans in the next 12 months, fell 3.5 percent in New York trading after missing analysts' second-quarter profit estimates.

Profit from continuing operations fell to $1.24 a share as more borrowers defaulted on loans, the McLean, Virginia-based company said yesterday, missing by 8 cents the average estimate of 16 analysts surveyed by Bloomberg.

Capital One, American Express Co. and Discover Financial Services shares have dropped by more than a third in the past year amid concern the lenders underestimated the depth of the U.S. slowdown. Delinquent credit-card accounts rose more than 100 basis points from a year earlier to 3.99 percent in May, according to Bloomberg data. The U.S. lost 62,000 jobs in June, the sixth straight month of shrinking payrolls.

``Losses will continue to intensify in all lending segments in the coming months,'' Scott Valentin, analyst at Friedman Billings Ramsey & Co., who has an ``underperform'' rating on Capital One, said today in a research note about the lender.

Capital One declined $1.50 to $41.30 in New York Stock Exchange Composite trading at 9:34 a.m. The lender has slumped 46 percent in the past year.

Capital One set aside $1.6 billion for failed loans and to build reserves in the second quarter. The reserves could absorb about $7 billion in loan losses in the 12 months leading to June 30, 2009, the company said yesterday in a slide presentation. Capital One said April 17 it expected $6.7 billion of loan losses in the year through March 2009.

Borrower Defaults

Profit in Capital One's U.S. card unit fell 43 percent from a year earlier to $340.4 million as loan defaults rose to 6.26 percent from 3.56 percent a year earlier. The company said it expects a default rate in the ``low six percent range'' in the third quarter, rising to about 7 percent in the fourth quarter.

The company's second-quarter net income fell 40 percent to $452.9 million, or $1.21 a share, from $750.4 million, or $1.89 a year earlier.

New York-based American Express, the largest credit-card company by purchases, said June 25 that credit indicators during that month worsened beyond the expectations of CEO Kenneth Chenault. The lender will report second-quarter results July 21.

source : http://www.bloomberg.com/