Capital One: Washington Obstinacy Loser

NEW YORK ( TheStreet) -- Capital One Financial ( COF) was the winner among the largest U.S. banks on Wednesday, with shares declining 2% to close at $58.72.

The broad indexes pulled back after the Whitehouse said that President Obama would veto a proposal by Speaker of the House John Boehner to avert the Fiscal Cliff by limiting the increase of federal income tax rates to increase on couples earning $1 million a year or more, in the unlikely event that a bill of this type would be introduced, pass both the house and the Democrat-controlled Senate, and find its way to the president's desk.

White House Communications Director Dan Pfeiffer released a "Fact Sheet," saying that Boehner's plan would "raise taxes by an average of $1,000 on 25 million working families with children and students," as it would "not continue the American Opportunity Tax Credit and improvements to the Child Tax Credit and Earned Income Tax Credit."

The Census Bureau on Wednesday said that housing starts declined to a seasonally adjusted annual rate of 861,000 in November from a downwardly revised 888,000 in October. There was a bright note in the data, as residential building permits rose to an annual pace of 899,000 units in November from an upwardly revised 868,000 in October.

Bank stocks took a breather, with the KBW Bank Index ( I:BKX) down slightly to close at 51.22, with all but five of the 24 index components seeing declines.

UBS ( UBS) on Wednesday announced that it had agreed to pay $1.5 billion to global bank regulators to settle a probe against the company for manipulating its Libor rate submissions. The company also said that its Japanese subsidiary had "agreed to enter a plea to one count of wire fraud relating to the manipulation of certain benchmark interest rates, including Yen LIBOR." UBS admitted that employees "engaged in efforts to manipulate submissions for certain benchmark rates to benefit trading positions."

Large U.S. banks, including Bank of America ( BAC) and JPMorgan Chase ( JPM) have referred to litigation reserves related to regulatory probes over Libor submissions. Bank of America's shares were down 1.5% to close at $11.19, while JPMorgan was down nearly 1%, closing at $43.53.

Capital One's shares have now risen 39% year-to-date, following a flat return during 2011.

The shares trade for 1.5 times tangible book value, according to Thomson Reuters Bank Insight, and for 8.3 times the consensus 2013 EPS estimate of $7.03, among analysts polled by Thomson Reuters. The consensus 2014 EPS estimate is $7.39.

FBR Capital Markets analyst Paul Miller on Wednesday included Capital One among his list of "five top stocks in the financial services/real estate sector" for 2013, because of its "compelling valuation" with a price target of $72, or 10 times the analyst's 2013 EPS estimate of $7.15, and 1.1 times his year-end 2013 tangible book value estimate.

Miller also cited Capital One's "expected resumption of the dividend, and increased earnings power," following its great transition during 2012, with the acquisition of ING Direct (USA) providing plenty of deposit liquidity in advance of the company's purchase of HSBC's ( HBC) U.S. credit card portfolio.

"We believe that the issues restraining the stock in the near term (seasonal weakness in credit card asset quality, concerns regarding the amount of planned asset runoff, and elevated non-interest expense) will be positively resolved in 1H13," he said.

COF Chart COF data by YCharts

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-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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