Capital One, Little Credit

The cracks are reappearing in the Capital One (COF Quote) story.

For the past two years, Capital One has done a fair job of proving its critics, including this column, wrong. The racy credit card lender managed to post a whopping 34% increase in earnings in 2004, and its stock is up a massive 160% from February 2003, giving the company a current market worth of $19 billion. The huge amounts spent on sports sponsorship, TV advertising and other forms of marketing could even give the impression that Capital One has now established itself as a permanent heavyweight in the U.S. financial services industry.

But anyone taking an honest look at Capital One's fourth-quarter earnings would see that its growth-at-all-costs strategy never went away and is starting to come undone. Capital One has managed to do well since 2001 because it's been taking full advantage of the easiest credit environment in U.S. history. Now, as the advantages of that easy-money boom dissipate, the company's shortcomings are becoming sorely apparent. ...