Capital One’s first quarter results showed consumers continue to spend on their cards — and management touted the benefits of the proposed $35 billion buyout of Discover Financial Services.
Purchase volume on its cards was up 6% year over year to $146.6 billion, but was 7% below the fourth quarter of 2023.
The company’s supplementals showed that the card segment’s net charge-off rate of 5.9% is up from 4% a year ago.
Consumer banking average loans decreased $1.1 billion, or 2%, to $75.1 billion.
CEO Richard Fairbank noted on the call that card loan balances were up 10% year over year, as measured at the end of the quarter.
“The linked quarter delinquency and charge-off rate trends were modestly worse than what we would expect from normal seasonality,” he said, adding, “We believe this is largely driven by lower and later tax refund payments to consumers so far in 2024 relative to what we’ve historically observed. Tax refunds are an important factor in credit seasonality. Each year, they drive an improvement in delinquency payments and recoveries, starting in February.”
Auto originations increased 21% from the prior year quarter, a return to growth after several quarters of year-over-year decline, according to commentary on the call.
Asked about credit metrics during the question-and-answer session with analysts, the CEO maintained that the “Consumer remains a source of strength in the economy. … When we look at our customers, we see that they have higher bank balances than before the pandemic. And this is true across income levels.” Despite the pressures of inflation, he said, “consumers are in reasonably good shape.”
Elsewhere in the call, Fairbank said that the pending acquisition of Discover represents a “singular opportunity” that will create a consumer banking and global payments platform with unique capabilities, modern technology, powerful brand and a franchise of more than 100 million customers.
Fairbank said that the Discover deal will lead to “increased competition among banks, credit card issuers, and payment networks, and provide significant benefits for consumers merchants and the communities that we serve. While some have raised concerns about competition, we believe that the facts are in favor of the deal.”
He noted that should the acquisition gain approval and close, there will still be four networks, and added that “regulators have found every time they’ve studied it that the credit card market is highly competitive and not at all concentrated. In fact, it’s less concentrated today than it was 10 years ago. Consumers can choose from over 4,000 issuers all able to offer products with similar capabilities.”
As he told analysts, “we have to compete every day for every single transaction because our customers can simply choose at any moment to use another card. And if they don’t like the card they have, they can stop using it entirely or close the account or switch to another card with another bank.”
Asked later on the call about the impact of the CFPB’s rules that would lower credit card late fees, Fairbank said, “When the rule is implemented, there will be significant impact to our P and L. We expect that this impact will gradually resolve itself within a couple of years — including changes to our policies, products and investment choices. Some of these mitigating actions have already been implemented and are underway. We are planning on additional actions once we learn more about where the litigation settles out.”
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