Wow, what a close! Here is some of the concern that drove it down:
NEW YORK, July 17 (Reuters) - Capital One Financial Corp.'s
(NYSE:COF - News) credit card asset-backed securities traded weaker on Wednesday, prompted by news that regulators asked the company to boost its loan loss reserves.
Yield spreads, or risk premiums, on Capital One credit card asset-backeds across all maturities, totaling about $28 billion, widened by two to five basis points from Tuesday's close, traders said.
The weakness in Capital One's asset-backeds was modest compared to losses suffered by its stock and corporate bonds. Its shares tumbled more than $20, or nearly 40 percent, at $30.48, and its corporate bonds lost about five points. Sharp loss in Capital One shares spread to stocks of other credit card companies like MBNA Corp. (NYSE:KRB - News).
Capital One disclosed the regulatory request after the market closed on Tuesday.
The news fanned fears that credit card issuers like Capital One that target borrowers with patchy or poor credit histories may be vulnerable to a spike in cardholders defaulting on their credit card charges.
The Capital One news seized the day's spotlight in an otherwise muted session in new-issue and secondary asset-backed activity.
But analysts downplayed the Capital One situation, citing that regulators have been getting tougher on subprime lending, rather than a deterioration Capital One's business.
"What Capital One is feeling is a change in regulatory environment," said Alex Roever, head of asset-backed research at Banc One Capital Markets. "It is not collateral-related. It's not a business change for them."
In fact, Capital One's second-quarter earnings rose 37 percent to 92 cents a share, better than analyst forecasts of 85 to 90 cents per share, according to Thomson First Call.
Moreover, consumer fundamentals for the credit card industry have improved since the beginning of the year, as late payments and bad accounts have trended lower.
Bond rating service Standard & Poor's said on Wednesday the delinquency rate on $381 billion of credit card receivables tracked by S&P slipped 20 basis points from April to 5 percent in May, its lowest level since last July.
S&P's credit card charge-off index -- which gauges the level of bad loans that issuers write off -- fell 30 basis points from April to 7.1 percent in May. The May figure was a tad higher than 6.9 percent for the same period a year ago.
But this improvement in consumer credits was not felt by subprime card issuers like Providian Financial Corp. (NYSE:PVN - News) and NextCard Inc. (Other OTC:NXCD.PK - News), whose losses have soared. In February, regulators closed NextCard's banking unit. CONFIDENCE IN CAPITAL ONE ABS INTACT Investors, who hold Capital One credit card ABS, said there
is no reason to unload them, expressing confidence in the soundness of the collateral that backs the company's ABS.
"I would still be a buyer of their ABS paper. I won't sell it," said Mike Krushena, a portfolio manager at Munder Capital Management at Birmingham, Michigan, which manages $38 billion in assets.
"They have been very good in managing their trusts," said Darcy Morris, analyst at Evergreen Investments in Charlotte, North Carolina, which has $212 billion in assets. "Subprime lending is a tricky business, and Capital One has done the best job," she said.
It was unclear whether the weakness in Capital One's asset-backeds spread to the broader ABS market due to thin secondary trading, market sources said.
Market players said they are wary of other subprime credit card issuers, notably Metris Cos Inc. (NYSE:MXT - News), which on Wednesday reported a second-quarter loss of $36.4 million or 74 cents a share, worse than Wall Street estimates.
biz.yahoo.com
Bought some afterhours at $30.25 (fingers crossed), just playing it for the bounce.
I've had a credit card with them for 4 years and they've been great for me. |
