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When it comes to bargains, banks can be a dangerous place to look. That's a big part of the reason why all of the big U.S. banks trade for superficially low price-to-book ratios right now. But there's an exception in
Capital One Financial(COF - Get Report), the $35 billion bank that's probably best known for its commercials that feature rampaging Vikings. This bank's financial situation is as unique as its marketing.
That's because until recently, Capital One's traditional banking business has mostly been an afterthought. Instead, the firm focused on pushing its credit cards, rising to the point of becoming one of the biggest issuers in the U.S. Traditionally, the firm has limited its credit risk by securitizing that credit card debt and selling it to the market in order to finance new cards, but with the credit crunch of 2008, Capital One took advantage of some deeply discounted peers to build its base of dirt cheap deposits. The firm bought ING's U.S. online banking business and acquired smaller regional names for a brick-and-mortar presence as well. With rates at record lows and investors averse to risk, Capital One is able to acquire deposits for peanuts and lend them to consumers at much higher rates.
Capital One has proven adept at measuring its borrowers' risk in the last few years, and now, with increased lending transparency, it should be able to do an even better job keeping losses low. While lending competition is heating up, COF's household-name brand and non-big-bank status should help it to attract borrowers and depositors for the foreseeable future.
Capital One also shows up on a recent list of
9 Consumer Finance Stocks to Consider.
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