Capital One 2Q profit up, plans $2B stock offering

Friday, July 8, 2011, Vol. 35, No. 27

NEW YORK (AP) — Capital One Financial Corp. said Wednesday that its second-quarter profit climbed 50 percent, as the improving payment habits of its credit card and loan customers allowed the bank to sharply reduce the amount it had set aside to cover uncollected payments.

The company, best known for its heavily advertised credit card business, also announced a $2 billion stock offering. The funds will be used to help pay for the bank's planned $9 billion acquisition of ING's online banking unit, announced last month.

News of the offering pressured the stock in midday trading. Capital One shares slipped 72 cents, to $51.52 in heavy trading, as the broader markets rose.

The McLean, Va.-based bank said net income rose to $911 million, or $1.97 per share, for the three months ended June 30, compared with $608 million, or $1.33 per share, a year ago.

Analysts, on average, expected earnings of $1.73 per share, according to data provided by FactSet.

Net interest income, the money earned from deposits and loans, rose to $3.14 billion from $3.1 billion. That was helped by Capital One's acquisition in April of Kohl's credit card portfolio.

The amount the bank wrote off as uncollectible fell during the quarter, as the net charge-off rate dropped by $214 million, to 2.91 percent of balances on an annualized basis, from 5.35 percent a year ago.

That improvement enabled Capital One to release $579 million from the reserves it had set aside for future write-offs. Sterne, Agee analyst Henry Coffey said the release added about 81 cents to the per-share profit for the period.

Total loans at the end of the quarter rose 4 percent to $4.9 billion, driven largely $3.7 billion contributed to Kohl's, along with growth in auto finance and commercial banking. Coffey noted that credit card balances dropped during the quarter.

Non-interest income, or money earned from fees and charges, climbed to $857 million from $807 million.

Capital One, which is known for its "What's in Your Wallet?" advertising campaign, said marketing expenses increased to $329 million from $219 million during the quarter.

The company said the stock offering is subject to forward sale agreements with Barclays Capital and Morgan Stanley.

Capital One is giving the underwriters a 30-day option to buy up to an additional $300 million shares to cover any excess demand.