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updated: 1/18/2013 7:02 AM

Capital One misses estimates on increase in loss reserves

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Bloomberg News

Capital One Financial Corp., the lender that gets more than half of its revenue from credit cards, posted a fourth-quarter profit that missed analysts' estimates as it set aside more reserves to cover loan losses.

Net income advanced to $843 million, or $1.41 a share, from $407 million, or 88 cents, a year earlier, the McLean, Virginia- based company said today in a statement. That fell short of the $1.59 average estimate of 21 analysts surveyed by Bloomberg. The company's revenue outlook missed analyst estimates and shares fell as much as 6.6 percent in after-hours trading.

Chief Executive Officer Richard Fairbank, 62, spent more than $28 billion on acquisitions since 2005, including the purchase last year of HSBC Holdings Plc's U.S. card business. Capital One also bought ING Groep N.V.'s online U.S. bank, which helped boost deposits by more than $80 billion.

The acquisitions "are impacting credit reserving," Jason Arnold, an analyst at RBC Capital Markets, said in a phone interview before results were announced. "I wouldn't be surprised to see a modest increase in the credit reserves in the year ahead."

Capital One fell to $57.37 at 4:52 p.m. in New York following the announcement. It closed at $61.59 in regular trading. It has gained 6.3 percent this year, outpacing the 4.6 percent gain for the 24-company KBW Bank Index.

Revenue Projection

The company said quarterly revenue in 2013 would be about the same as the fourth quarter's $5.62 billion, missing the $5.76 billion first-quarter 2013 estimate of 12 analysts surveyed by Bloomberg.

"A modest decline in earning assets will be offset by a steady to slightly higher net interest margin," the lender said.

Capital One set aside $1.15 billion for loan losses in the fourth quarter, an increase of $290 million from a year earlier and $137 million over the third quarter.

Capital One may raise its quarterly dividend from 5 cents a share to 18 cents, and repurchase $500 million in stock this year, KBW Inc. analysts led by Fred Cannon estimated in a Jan. 13 note. The company must get approval for its capital plan from the Federal Reserve, which subjects the largest banks to annual stress tests. Fairbank told investors last month to expect a "meaningful" dividend.

Capital One credit-card loans at least 30 days overdue, a signal of future write-offs, averaged 3.66 percent during the final three months of last year, the highest among the six- biggest U.S. issuers, company filings show.

Hurricane Sandy

Capital One may face losses tied to Hurricane Sandy, which struck the U.S. in October. About $20 billion of Capital One's consumer loans and $16.6 billion of its commercial loans are outstanding in New York, New Jersey and Connecticut, three states hit by the storm, according to a Nov. 8 filing.

"Historically, insurance proceeds and government support that follow natural disasters have significantly mitigated" losses, Jason Goldberg, a New York-based analyst at Barclays Plc, wrote in a Jan. 9 note. "It is too early to estimate the potential financial impact."

Capital One will rebrand ING Direct USA as "Capital One 360" in February, replacing ING's orange-ball logo with a design incorporating the new name, according to a December e- mail to customers.

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