Capital One Gets Through Hard Part

MCLEAN, Va. (TheStreet) -- Investors considering buying, or dumping, Capital One Financial (COF - commentary - Trade Now) should take their eyes off the stock market, analysts' reports and pundits' musings, and review the U.S. job market.

Capital One had $70 billion in managed credit-card receivables as of Sept. 30, placing the McLean, Va.-based lender fourth among banks after JPMorgan Chase (JPM - commentary - Trade Now) and Bank of America (BAC - commentary - Trade Now), with $165 billion each, and Citigroup (C - commentary - Trade Now), with $151 billion.

The company's annualized ratio of net charge-offs to average loans for the third quarter was 4.53%, and its loan-loss reserves kept up with that pace, covering 4.66% of total loans.

With almost half of its assets (on a managed basis, including securitizations) in credit-card receivables, Capital One's prospects are more directly tied to the health of the U.S. consumer than its rivals.

Credit-card losses have a tendency to match the unemployment rate, which hit a 26-year high of 9.8% in September. For the third quarter, the net charge-off ratio for Capital One's managed credit-card portfolio (including securitizations) was 9.59%, up from 9.24% in the second quarter and 6.10% a year earlier.

Capital One's credit-card charge-off ratio for the third quarter was the best among the "big four," with ratios of 12.9% for Bank of America and 10.3% for JPMorgan. Citigroup breaks down its credit-card loss ratios differently, with a loss ratio of 10.15% for Citi-branded cards and a whopping 13.3% for retail-partner cards.

Credit-card delinquencies of 30 days or more also increased, to 5.53% in the third quarter from 4.99% in the second quarter and 4.34% from a year earlier. Capital One had the lowest reported 30-day managed credit-card delinquency rate among the big four, except possibly for the Citi-branded cards. Citigroup only provided a 90-day delinquency figure for that portfolio, which was 2.37%.

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Philip W. van Doorn joined TheStreet.com Ratings., Inc., in February 2007. He is the senior analyst responsible for assigning financial strength ratings to banks and savings and loan institutions. He also comments on industry and regulatory trends. Mr. van Doorn has fifteen years experience, having served as a loan operations officer at Riverside National Bank in Fort Pierce, Florida, and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a Bachelor of Science in business administration from Long Island University.