Capital One: Credit Quality Winner

NEW YORK (TheStreet) -- Capital One Financial (COF) was the winner among the largest U.S. financial names on Thursday, with shares rising 2% to close at $56.23.

The broad indexes all rose, driven by a strong earnings report and significant dividend increase from Cisco (CSCO).

The Commerce Department announced on Thursday that housing starts declined to a seasonally adjusted 746,000 during July, from 754,000 in June, but building permits last month increased to a four-year high seasonally adjusted annual rate of 812,000, from the June rate of 760,000.

The KBW Bank Index (I:BKX) rose 1% to close at 46.98, with all but three of the 24 index components rising for the session.

Capital One's shares have now returned 33% year-to-date, following a flat return during 2011.

The shares trade for 1.6 times tangible book value, according to Thomson Reuters Bank Insight, and for eight times the consensus 2013 earnings estimate of $6.92, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $6.20.

Capital One on Wednesday reported a sharp improvement in domestic credit card quality ratios in July, reflecting the increase in total credit card loans and associated credit marks taken when the company purchased $26.7 billion in credit card loans from HSBC (HBC) during the second quarter.

During July, Capital One's annualized rate of net charge-offs to average domestic card loans was 2.62%, declining from 3.41% in June, and 3.37% in July 2011. Early-stage delinquencies also declined, with loans past due 30 days or more making up 3.16% of the domestic card portfolio as of July 30, improving from 3.16% the previous month, and 3.37% a year earlier.

Capital One's average domestic credit card loans held for investment totaled $80.6 billion, increasing from $53.3 billion the previous month, because of the HSBC portfolio purchase. Net charge-offs -- loan losses less recoveries -- in the domestic card portfolio during July were $175 million, increasing from $151 million in June, but declining from $198 million a year earlier, when average domestic card loans totaled $53.8 billion.

Capital One also reported improved credit quality in its much smaller international credit card portfolio, with a net charge-off rate of 4.97% during July, improving from 5.16% in June, and 6.59% in July of last year. The 30+ days delinquency rate in the international credit card portfolio improved to 4.78% in July, from 4.84% the previous month, and 5.34% a year earlier.

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