Capital One Profits Slide

Quarterly earnings drop more than 40% year over year.
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Capital One Financial's

(COF) - Get Report

profit slid 42% from a year earlier amid a worsening economic environment that is beginning to show signs of cracks outside of the maligned housing and mortgage sectors.

Capital One reported profit of $226.6 million, 60 cents a share, in-line with what the McLean, Va.-based consumer finance company

warned Wall Street two weeks ago. Earnings from continuing operations, which excludes Capital One's shutdown of its wholesale mortgage arm GreenPoint Mortgage this summer, were $321.6 million, or 85 cents a share compared to $402.6 million, or $1.17 a share in the year earlier period.

For the full year, Capital One reported net income of $1.6 billion, or $3.97 a share, also in line with what the company previously announced. Earnings from continuing operations for the full year were $2.6 billion, or $6.55 a share.

"As the economy has weakened, we have selectively pulled back loan growth and maintained appropriately conservative underwriting standards," said Capital One's Chairman and CEO Richard Fairbank. "We feel confident that our strong balance sheet, resilient businesses, and decisive actions will allow us to successfully navigate the cyclical economic weakness and we remain poised to generate above average returns on the other side of the cycle."

The company has worked hard to expand beyond its credit card roots into banking and mortgages. It bought two banks, Hibernia and North Fork Bancorp. Along with North Fork came its large Alt-A lender, GreenPoint Mortgage.

But despite its foray into other financial services businesses, Capital One has been struggling as the credit crisis roils on. The lack of liquidity in the mortgage markets this summer forced Capital One to shut GreenPoint. The shuttering of the mortgage operations at GreenPoint forced the company to lay off close to 2,000 employees.

Capital One said two weeks ago that a larger provision totaling $1.9 billion, and additional legal reserves contributed to the lower earnings results. Capital One's provision comprises about $1.3 billion of loans charged-off and an addition to reserves of $650 million because of higher delinquencies in its consumer lending business, continued deterioration of home equity lines of credit originated by GreenPoint, as general expectations for a weaker economy this year.