Summary
1) The CARD act of 2009 will impair fee collection, and absent a new drive to assess annual fees to their better clients it will be challenging if not impossible to recoup those fees. 2) Capital One will be dealing with rising unemployment, which has and will continue to correlate directly to higher delinquency and higher charge offs 3) The response to these events from a risk management perspective will inhibit asset growth and thus compound the earnings issue
Analysis
Capital One, as with other major credit card issuers, will be facing major headwinds in 2009. Absent the recent government intervention on rates, fees, and disclosures, they were set for a rather choppy year anyway as delinquency trends upticked significantly. Their response, which was to reduce credit access, both in terms of reviewing and closing potentially troublesome credit lines, as well as raising standards for new issuance, while good for risk management, is not so good for asset growth, which is critical to increasing earnings.
So, adding up increased delinquency, increased chargeoffs, reduced fees, and overall slowing or flat asset growth, and it makes it very difficult to conceive Capital One or other significant credit card issuers making much of 2009.
