When High Charge-Offs Start Looking Good (COF)

Capital One Financial Corp. (NYSE: COF) has some more dismal data regarding the monthly credit card defaults and delinquencies.  The defaults rose again in June, bolstered by weak economic data and higher unemployment.  But there is actually some good news buried in here along with what may be the trend of “less-bad” news.  The same holds true on the international side of its operations.

An SEC filing this morning showed that net charge-off rates on an annualized basis for U.S. credit cards rose to 9.73%, up from 9.41%.  These are the debts that the company believes it will never collect on.  The delinquencies of at least 30 days have now come down for the fourth month in a row. This is now down to 4.77% from 4.90% in May.  Charge-offs in US-auto loans rose to 3.89%, up from 3.62% in May.  The delinquency rate in US-autos also rose to 8.89%, up from 8.59% in May.

There was a positive development in Capital One’s international operations.  The charge-off rate came down to 9.26% from 9.77% in May.  The international delinquency rate was flat at 6.69%.

We have yet to see any directional trading after yesterday’s $23.11 close.  The stock’s 52-week trading range is $7.80 to $63.50.  Cheering of any sort along this line is a hard sell.  But there are at least some green shoots here.  If delinquencies are coming down or stay flat and if the company is charging off its bad debts, then stabilization in the interest generating operations is a very easy outcome to see.

Jon C. Ogg
July 15, 2009