Capital One cuts 2007 earnings forecast

McLEAN, Va. -- Capital One Financial Corp. said early Thursday that its 2007 earnings will fall short of the company's previous expectations because of increased loan delinquencies and additional legal reserves in the fourth quarter.

Capital One, a credit card issuer that continues to expand into retail banking, issued a statement just after midnight saying it expects to report fourth-quarter profit of 60 cents per share and full-year earnings of about $3.97 per share, below its prior forecast of "about $5 per share."

The McLean-based company said it plans to report its detailed financial results Jan. 23 as previously scheduled.

Capital One said it is taking a $1.9 billion provision for loan losses in the fourth quarter, including about $1.3 billion in charge-offs. The company said it is also adding about $650 million to its charge-off allowance because of recent delinquencies in its consumer lending businesses and "continued deterioration" of approximately $700 million of home equity lines of credit originated by its GreenPoint Mortgage unit, which shut down in August.

The company said it now expects charge-offs of about $5.9 billion in 2008 amid expectations that the U.S. economy will be weaker. That's up from the $4.9 billion to $5.5 billion Capital One predicted in November.

The company said it initiated a $60 million legal reserve for possible damages in pending litigation involving the Visa credit card network, of which Capital One is a member. Capital One previously said it was taking a fourth-quarter pre-tax charge of about $80 million for liabilities in connection with the antitrust settlement that Visa reached in November in American Express Co.

Capital One said it expects to finish the year with more than $29 billion in available liquidity, and its asset ratios are within the company's target range. The board of directors is expected to pay a "constant" quarterly dividend throughout 2008 that approximates 25 percent of expected net income after tax, Capital One said. The company said it also expected the board to authorize a new share repurchase program, which follows its previously announced $3 billion stock buyback.