Capital One Profits Hit by Consumer Slump - TheStreet

Capital One's

(COF) - Get Report

profit slumped 40% in the second quarter, fueled by worsening credit trends in the consumer card issuer's U.S. credit card business.

The McLean, Va.-based financial firm made $452.9 million, or $1.21 a share in the second quarter, missing analysts' estimates by a dime, according to Thomson Reuters. In the year-earlier period, Capital One made $750.4 million, or $1.93 a share. Net income from continuing operations -- which excludes a loss related to the shutdown of

GreenPoint Mortgage

in August 2007-- was $462.5 million, or $1.24 a share, compared to $767.6 million, or $1.93 a share, a year earlier.

The company said it added a provision of $829.1 million in the quarter to cover against loan losses, down 23% from the first quarter provision but more than double its provision a year earlier.

Capital One's stock slumped 4.7% to $40.80 after the market closed, despite surging 15% in Thursday's regular session after several better-than-expected earnings reports from

JPMorgan Chase

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,

PNC Financial Services

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and

BB&T

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.

"Despite cyclical economic headwinds, the company continues to deliver profits and generate excess capital," said Capital One Chairman and CEO Richard Fairbank. "We remain well-positioned to navigate the near-term economic challenges and to deliver strong shareholder value through the cycle."

The company said that its U.S. card business -- housed in its national lending segment and its largest contributor to profit -- reflected "continued cyclical credit worsening" and the company's "actions to navigate the downturn." Capital One remains "cautious on loan growth" and "continues to focus its marketing and originations on the parts of the U.S. card market that the company believes provide the best combination of risk-adjusted returns and losses," it said.

The segment recorded net income of $340.4 million, down 31% from the first quarter and 43% from a year earlier. Revenue from U.S. cards dropped 10% from the first quarter to $280.7 million. The company's so-called "managed loans" rose a mere 2.3% from the prior year's $68.1 billion.

U.S. card charge-offs jumped 41 basis points from the first quarter to 6.26% and by 270 basis points from a year earlier to 6.26%. The company reiterated that it expects the charge-off rate to be in the low 6% range in the third quarter and rising to 7% in the fourth quarter. Charge-offs for credit cards typically are higher than mortgages and other home loans because they are unsecured loans.

The company has previously said that it is pulling back on loan growth as industry trends and economic indicators weaken.

Still, the U.S. card segment remains "well-positioned to successfully navigate near-term challenges" and to "deliver solid results through the economic cycle," it said.