Reuters logo
Fitch Affirms Capital One Financial at 'A-/F1'; Outlook Stable
October 4, 2016 / 6:31 PM / a year ago

Fitch Affirms Capital One Financial at 'A-/F1'; Outlook Stable

(The following statement was released by the rating agency) CHICAGO, October 04 (Fitch) Fitch Ratings has affirmed Capital One Financial Corporation's (COF) ratings at 'A-/F1'. The Rating Outlook is Stable. The affirmation and Stable Outlook are driven by COF's continued solid earnings performance, still good credit performance, and satisfactory capital ratios for its business model. The rating action follows a periodic review of the large regional banking group, which includes BB&T Corporation (BBT), Capital One Finance Corporation (COF), Comerica Incorporated (CMA), Fifth Third Bancorp (FITB), Huntington Bancshares Inc. (HBAN), Keycorp (KEY), M&T Bank Corporation (MTB), MUFG Americas Holding Corporation (MUAH), PNC Financial Services Group (PNC), Regions Financial Corporation (RF), SunTrust Banks Inc. (STI), US Bancorp (USB), Wells Fargo & Company (WFC), and Zions Bancorporation (ZION). Company-specific rating rationales for the other banks are published separately, and for further discussion of the large regional bank sector in general, refer to the special report titled 'Large Regional Bank Periodic Review,' to be published shortly. KEY RATING DRIVERS IDRS, VR AND SENIOR DEBT The affirmation of COF's ratings continues to be supported by good earnings performance, which over time has remained above the average of its large regional peer group. In Fitch's view, this is largely driven by COF's comparatively higher net interest margin, given its proportionately larger mix of higher yielding credit card receivables in its loan portfolio relative to peer institutions. COF also continues to drive a strong efficiency ratio relative to peer banks which has also helped to support its earnings performance and therefore its ratings. Going forward Fitch expects COF to continue to have a strong efficiency ratio given its significant investments in becoming digital in its operations and customer interfaces. Fitch believes these investments have the potential to more meaningfully increase scale benefits for COF relative to peer institutions over time. Fitch continues to believe the long-term evolution of COF's funding profile is supportive of today's rating action. Over the last several years, COF has moved away from a business model almost entirely reliant on wholesale borrowings and securitizations to one being more fully reliant on deposit funding via a mix of organic deposit growth and acquisitions. While Fitch views this movement positively, COF's loan-to-deposit ratio remains on the high-end of peer averages, routinely hovering around 100% relative to a mid-70% average for many other peers. Fitch views COF's capital ratios as supportive to the rating, particularly when taken in context of the company's ability to accrete capital via growth in retained earnings more quickly than some peers. However, Fitch believes the strength of this capital position is partially offset by the company's higher concentration in consumer lending assets, which encompass credit card loans, auto loans, and some installment loans. These asset classes tend to carry higher yields but also have higher loss ratios. While COF has worked to further balance its loan portfolio, most notably with the acquisition of General Electric's healthcare lending business in 2015, it still remains more concentrated than some peers. To the extent that COF continues to prudently diversify its loan portfolio this could lead to longer-term upside to the ratings (discussed in the ratings sensitivities section below). Credit quality for COF (as well as the rest of the industry) has generally continued to be good, but there is some evidence of the beginnings of a modest reversion in certain asset classes. This reversion has already occurred in COF's energy loan portfolio, though at $3 billion energy loans only represent 1.3% of total company loans. Additionally, there has been some credit deterioration in COF's relatively small taxi medallion lending portfolio, as pressure from ride hailing applications, particularly in the Chicago market, has impacted collateral values in this business by about 60%. However, the taxi medallion portfolio is only approximately $854 million or 0.36% of total loans. This deterioration has been manageable for the company in the context of its good quarterly earnings generation. Fitch believes that some credit deterioration is likely in the company's auto loan portfolio. Across the auto lending industry Fitch has become cautious about the extension of loan terms as well as the potential for declines in used car prices (e.g collateral values) over the next couple of years. COFs auto loan portfolio has a higher proportion of loans to non-prime customers than the auto portfolios of other peer institutions. As a result, Fitch believes COF's auto loan portfolio will exhibit higher delinquency trends and loss rates on a going forward relative to most other peer banks that have been more focused on originating only prime auto loans. Fitch generally expects the potential auto loan credit deterioration to be manageable through COF's quarterly earnings, but credit performance is expected to be slightly worse than its peers. SUPPORT RATING AND SUPPORT RATING FLOOR COF has a Support Rating of '5' and Support Rating Floor of 'NF'. In Fitch's view, COF is not systemically important and therefore, the probability of support is unlikely. IDRs and VRs do not incorporate any support. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES COF's subordinated debt is notched one level below its VR of 'a-' for loss severity. COF's preferred stock is notched five levels below its VR, two times for loss severity and three times for non-performance. These ratings are in accordance with Fitch's criteria and assessment of the instrument's non-performance and loss severity risk profiles and have thus been affirmed based on the affirmation of the VR. LONG- AND SHORT-TERM DEPOSIT RATINGS The uninsured deposit ratings of Capital One Bank (USA), National Association (COBNA), Capital One National Association (CONA), and Chevy Chase Bank, F.S.B. are rated one-notch higher than COF's IDR and senior unsecured debt because U.S. uninsured deposits benefit from depositor preference. U.S. depositor preference gives deposit liabilities superior recovery prospects in the event of default. HOLDING COMPANY COF's IDR and VR are equalized with those of its operating companies and bank, reflecting its role as the bank holding company, which is mandated in the U.S. to act as a source of strength for its bank subsidiaries. The ratings are also equalized reflecting the very close correlation between holding company and subsidiary failure and default probabilities. SUBSIDIARY AND AFFILIATED COMPANY The VRs of COBNA and CONA are equalized with COF's VR, reflecting Fitch's view that it is core to COF's business strategy and financial profile. RATING SENSITIVITIES IDRS, VRs AND SENIOR DEBT Fitch believes there may be some incremental upward rating potential for COF's ratings over the long term if COF continues to prudently diversify its loan portfolio to achieve a more balanced mix between consumer and commercial assets. Further, the ratings could be upgraded one notch over time if COF achieves loan portfolio diversification with solid asset quality performance and improved funding more consistent with peer banks and also maintains current capital levels. Alternatively, should COF's asset quality metrics deteriorate faster than industry averages and not be manageable within the context of quarterly earnings this could pressure the ratings or Outlook. Additionally, should COF's funding costs accelerate at a rate significantly faster than industry averages this could also potentially result in negative ratings pressure. Fitch views very favorably management's strategy of transforming COF into an even more digitally driven enterprise as it should help the company maintain its efficiency ratio at better than peer averages. However, to the extent that this also makes the company more reliant on technology than some peers, it could potentially increase some elements of operational risk. While not anticipated, if a large operational loss were to occur, Fitch would review COF's ratings at that time to determine if a negative action were appropriate. SUPPORT RATING AND SUPPORT RATING FLOOR Since COF's Support and Support Rating Floors are '5' and 'NF', respectively, there is limited likelihood that these ratings will change over the foreseeable future. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES The ratings for COF and its operating companies' subordinated debt and preferred stock are sensitive to any change to COF's VR. LONG- AND SHORT-TERM DEPOSIT RATINGS The long-and short-term deposit ratings are sensitive to any change to COF's long- and short-term IDRs. HOLDING COMPANY Should COF's holding company begin to exhibit signs of weakness, demonstrate trouble accessing the capital markets, or have inadequate cash flow coverage to meet near-term obligations, there is the potential that Fitch could notch the holding company IDR and VR from the ratings of the operating companies. SUBSIDIARY AND AFFILIATED COMPANY As the IDRs and VRs of the subsidiaries are equalized with those of COF to reflect support from their ultimate parent, they are sensitive to changes in the parent's propensity to provide support, which Fitch currently does not expect, or from changes in COF's IDRs. To the extent that one of COF's subsidiary or affiliated companies is not considered to be a core business, Fitch could also notch the subsidiary's rating from COF's IDR. Fitch has affirmed the following ratings: Capital One Financial Corporation --Long-term IDR at 'A-'; Outlook Stable; --Short-term IDR at 'F1'; --Viability at 'a-'; --Senior unsecured debt at 'A-'; --Senior Shelf at 'A-' --Subordinated debt at 'BBB+'; --Preferred stock at 'BB'; --Support at '5'; --Support Floor at 'NF'. Capital One Bank (USA), National Association --Long-term IDR at 'A-'; Outlook Stable; --Short-term IDR at 'F1'; --Viability at 'a-'; --Senior unsecured debt at 'A-'; --Subordinated debt at 'BBB+'; --Short-term debt at 'F1'; --Long-term deposits at 'A'; --Short-term deposit at 'F1'; --Support at '5'; --Support Floor at 'NF'. Capital One National Association --Long-term IDR at 'A-'; Outlook Stable; --Short-term IDR at 'F1'; --Viability at 'a-'; --Senior unsecured debt at 'A-'; --Subordinated debt at 'BBB+'; --Short-term debt at 'F1'; --Long-term deposits at 'A'; --Short-term deposit at 'F1'; --Support at '5'; --Support Floor at 'NF'. Chevy Chase Bank, F.S.B --Long-term deposits at 'A'. North Fork Bancorporation, Inc. --Subordinated debt at 'BBB+'. Contact: Primary Analyst Justin Fuller, CFA Senior Director +1-312-368-2057 Fitch Ratings, Inc. 70 West Madison Street Chicago, IL 60602 Secondary Analyst Bain Ruhmor, CFA Director +1-312-368-3153 Committee Chairperson Christopher Wolfe Managing Director +1-212-908-0771 Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: Additional information is available on Applicable Criteria Global Bank Rating Criteria (pub. 15 Jul 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1012636 Solicitation Status here Endorsement Policy here ail=31 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below