Credit Card Stocks Hammered
Credit card lenders weren't enjoying the fruits of Wednesday's rally after federal regulators raised concern about Capital One's (COF) loan reserves and Metris (MXT) missed earnings estimates by a huge margin.
Capital One entered a memorandum of understanding with regulators directing it to boost certain capital balances and increase its loan-loss reserves. The agreement, of a variety popularized in the savings and loan and real-estate lending crises of the 1980s and '90s, caused a minor panic among shareholders, who offered the stock down 35% to $32.99 at midday.
"Regulators have informed the company that they intend to request the company, Capital One Bank and Capital One F.S.B., enter into an informal memorandum of understanding with respect to capital, allowance for loan losses and other regulatory requirements," the company said in a release.The same release showed he company earned $213.1 million, or 92 cents a share, in the second quarter compared with $155.3 million, or 70 cents a share, a year earlier. Analysts had expected earnings of 86 cents per share. The company also raised its target for earnings-per-share growth for 2002 to 30% from 20% and said it expects to report earnings-per-share growth in 2003 of 20 percent or more. Salomon Brothers subsequently lowered its rating on the stock to neutral from buy, saying the company could experience higher-than-expected loan defaults. Meanwhile, Metris reported a wide second-quarter loss on a higher delinquency rate and said it will not issue guidance for the remainder of the year. The company, said it lost $36.4 million, or 74 cents a share, compared with a profit of $62.8 million, or 64 cents a share, in the year ago quarter. Wall Street had been expecting a profit of 22 cents in the quarter, according to analysts polled by Thomson Financial/First Call. Metris said its managed credit card portfolio fell $81 million to $11.7 billion, while the net interest margin fell to 14% from 14.1% in the year ago quarter. Fees from managed credit cards fell 19% to $127 million. Overall charge volume fell 14% to $2.2 billion in the quarter from $2.5 billion a year ago, while the managed delinquency rate rose to 10.2% from 9.8% a year ago. The company's loan loss reserve increased $51 million to $1.019 billion. Looking ahead, Metris warned that it will not issue any guidance for the remainder of the year.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV