I was reading through Capital one's earnings call the other One part in particular really caught my attention. CEO Richard Fairbank stated, "the delinquency rate for customers at least 30 days late on payment rose 134 basis points from one year earlier to 3.66%—reaching the highest level since March 2019" (Ponciano, 2023). They also said that their net charge-offs increased to $1.7 billion dollars.
One would think with the number of rate hikes by the Fed that there would be a tighter squeeze on the issuance of credit to consumers. Even more so considering the current economic conditions.
Capital One also said they are predicting an unemployment rate of around 5% by the end of summer or about 2.5 million jobs. I have a feeling that a lot of these are going to be in the banking and credit sector given Capital one's recent earnings - seeing as they recorded $960 million net revenue compared to 1.2 billion last quarter.
I kind of feel that we are slipping back into that "give credit to everybody" status, despite history showing us how disastrous that can be. I can only imagine that the sheer rising delinquencies is due to things such as people making riskier financial decisions that they normally wouldn't make because of inflation forcing their hand for certain needs such as food, loan payments, etc.
Who knows? Thoughts anyone?
Starting Score: 570
SO...MANY...FACTORS have yet to manifest themselves in this market its maddening. Also, given the fact that there is so much info out there and so many reporting on the developing train wreck (thanks internet 🙂) that it seems like it's in slow motion.
The die is cast.
@CardHunter wrote:I've been watching COF credit default swaps for the past month or two and it hasn't been pretty. As far as the delinquency rate, I look for the delinquency rates to rise as these rate hikes start to fully kick in and we start to really fill the effects in the economy. The way things are going, I think there are only going to be 2 banks standing and Capital One won't be one. JP. Morgan and The Fed. will be the winners. LOL JMO.
Very well stated! I couldn't agree with you more on the the economy not yet experiencing the full effects of the rate hikes. I feel like we've only just begun.
I feel like most people don't realize that inflation is a lagging indicator on the state of our economy - by 2 years! I absolutely concur that JPMorgan does not have to worry about going anywhere anytime soon lol.
Although it sucks that the delinquency rates are going to increase, I can't help but attribute that a good portion of this increase due to just bad financial decisions by consumers. I mean look at the auto market and consumer lending market throughout the entire pandemic. We had increase after increase in interest rate hikes and people were out there buying cars as if they were the last ones to ever be made. Which of course drove prices to record highs and now these people are paying for it -taking loans and financing that would be hard for them to afford in a good economy let alone an inflationary one lol. Now, I a car last December bc I HAD to as my previous car had almost 150,000 miles on it. I honestly didn't know how well the auto market was doing until I started shopping for cars and got a pre-approval for upwards of $150k. I was like, "I don't think I mentioned buying a Maserati did I"? Then when I started looking at cars then I expected to be in the $25k - $30k and saw that they were in the $60K - $70K range nowadays I was floored. Instead of chalking it up as "Oh well I have to", instead I went with a used car with like 15,000 mi on it and paid about $25k out the door.
@805orbust wrote:SO...MANY...FACTORS have yet to manifest themselves in this market its maddening. Also, given the fact that there is so much info out there and so many reporting on the developing train wreck (thanks internet 🙂) that it seems like it's in slow motion.
The die is cast.
You are absolutely correct. It's like I said in one of my replies to someone else on this thread about how most people don't realize that things such as inflation, GDP, and unemployment are lagging indicators of our economy by 2 years. A lot of people think that Just because inflation has eased a little, coupled with lower unemployment, that we are now almost out of the woods. However in my mind, I start thinking about the state of the country two years ago and if we're seeing results from when businesses began opening back up, lending began to pick back up, etc. Because if I'm not mistaken, I'm thinking we're just shy of the effects of omicron on the economy by a few months. So now we have that to look forward to lol.
Thank you for the insight!
@Guyatthebeach wrote:I don't think the news is as bad as it appears. We have to remember that CapitalOne is out of the mortgage business, and started scaling back & winding down their automotive floor plan financing business. With CapitalOne's credit card business, their core customer base is the subprime prime market. They factor in for losses in their business plan, as well as profiting from late fees. Even with the charge offs, CapitalOne still made a profit. As for their other credit card portfolios like Walmart, William-Sonoma, and BassPro for example, those are portfolios are going to make money or lose money depending on customer confidence and spending. Just remember they still made money.
I'm personally a CapitalOne fan, I think they will weather the storm well. Just my opinion.
Guyatthebeach
Well stated reply on your part 💯. I'm actually a Capital One fan as well. They have been really good to me and post BK -allowed me to demonstrate my credit worthiness, opening the door for other banks to take a look at me and sort of put me on the map credit-wise. I know some people complain about their customer service but I have never ever had a problem with their customer service.
Very valid point on your comparison of Capital One revenue versus others who rely on consumer confidence - really never thought of it like that.
@Legally_Speaking2512 wrote:I was reading through Capital one's earnings call the other One part in particular really caught my attention. CEO Richard Fairbank stated, "the delinquency rate for customers at least 30 days late on payment rose 134 basis points from one year earlier to 3.66%—reaching the highest level since March 2019" (Ponciano, 2023). They also said that their net charge-offs increased to $1.7 billion dollars.
One would think with the number of rate hikes by the Fed that there would be a tighter squeeze on the issuance of credit to consumers. Even more so considering the current economic conditions.
Capital One also said they are predicting an unemployment rate of around 5% by the end of summer or about 2.5 million jobs. I have a feeling that a lot of these are going to be in the banking and credit sector given Capital one's recent earnings - seeing as they recorded $960 million net revenue compared to 1.2 billion last quarter.
I kind of feel that we are slipping back into that "give credit to everybody" status, despite history showing us how disastrous that can be. I can only imagine that the sheer rising delinquencies is due to things such as people making riskier financial decisions that they normally wouldn't make because of inflation forcing their hand for certain needs such as food, loan payments, etc.
Who knows? Thoughts anyone?
I'm of the view that
(a) the economy has been in a recession since Covid, and that it's been camouflaged by the ability of certain sectors and population segments to do well, at the expense of the others
(b) the inflation problem was not due to an overheated economy, but to (1) supply chain crashes and (2) profiteering by those corporations that were in a position to price gouge and
(c) the Fed's increasing rates was, because of the above, the worst possible medicine for the current economic situation.
As for Capital One, it is always a leader in defaults when there is an economic downturn, for obvious reasons.
@SouthJamaica wrote:
@Legally_Speaking2512 wrote:I was reading through Capital one's earnings call the other One part in particular really caught my attention. CEO Richard Fairbank stated, "the delinquency rate for customers at least 30 days late on payment rose 134 basis points from one year earlier to 3.66%—reaching the highest level since March 2019" (Ponciano, 2023). They also said that their net charge-offs increased to $1.7 billion dollars.
One would think with the number of rate hikes by the Fed that there would be a tighter squeeze on the issuance of credit to consumers. Even more so considering the current economic conditions.
Capital One also said they are predicting an unemployment rate of around 5% by the end of summer or about 2.5 million jobs. I have a feeling that a lot of these are going to be in the banking and credit sector given Capital one's recent earnings - seeing as they recorded $960 million net revenue compared to 1.2 billion last quarter.
I kind of feel that we are slipping back into that "give credit to everybody" status, despite history showing us how disastrous that can be. I can only imagine that the sheer rising delinquencies is due to things such as people making riskier financial decisions that they normally wouldn't make because of inflation forcing their hand for certain needs such as food, loan payments, etc.
Who knows? Thoughts anyone?
I'm of the view that
(a) the economy has been in a recession since Covid, and that it's been camouflaged by the ability of certain sectors and population segments to do well, at the expense of the others
(b) the inflation problem was not due to an overheated economy, but to (1) supply chain crashes and (2) profiteering by those corporations that were in a position to do so and
(c) the Fed's increasing rates was, because of the above, the worst possible medicine for the current economic situation.
As for Capital One, it is always a leader in defaults when there is an economic downturn, for obvious reasons.
I agree wholeheartedly with (a)(b) and (c), and your thoughts on the cause of inflation are right in line with mine. The corporate profiteering angers me the most though because while corporations are answering public outcry about higher prices and sort of a "we don't know - it's just inflation", behind closed doors they are answering institutional investors questions about higher prices with "it's really helping our bottom line" 🤬.
In response to your statement about Capital One being a leader of defaults, which I never knew, now that I think about it, it absolutely makes sense. I got to thinking about why they lead in defaults compared to people like Discover or Chase and my hypothesis I landed on was simply that Capital One is a subprime lender who lends much more to a riskier credit demographic - as opposed to companies like the two other aforementioned banks.
Thank you for the insight on that as well.
@CardHunter wrote:I've been watching COF credit default swaps for the past month or two and it hasn't been pretty. As far as the delinquency rate, I look for the delinquency rates to rise as these rate hikes start to fully kick in and we start to really fill the effects in the economy. The way things are going, I think there are only going to be 2 banks standing and Capital One won't be one. JP. Morgan and The Fed. will be the winners. LOL JMO.
Well we already know that regional banks are in trouble, but those banks who played it smart will still be in standing in the end as I think that we are going into default.
Me personally, we already see that Chase will survive. I am hoping that BoA and Charles Schwab will stay alive. Chase is alright, but they usually don't balance both the personal/business the same.
