Capital One's -61% Cash Bleed Sparks Buying Frenzy (Up +2.15%)

Apparently when it comes to earnings in 2024, bad news actually makes stocks skyrocket. Go figure. 

(Source: Giphy) 

Capital One reported their Q2 earnings yesterday, and in simple terms, it wasn’t pretty. Yet, while the bank’s profits plummeted 61%, the stock is actually up 2.15% on the day. I honestly didn't see that coming, but like we’ve said in previous articles… It's earnings season and anything can happen.

(Source: Seeking Alpha) 

However, despite the random bullish sentiment that Capital One’s stock is experiencing today, what are the ugly actual financials looking like?

Well first off, Capital One had to set aside $3.9 billion for loan losses. That’s up from $2.5 billion last year. (read: You know it’s bad when you need to squirrel away an extra $1.4 billion for loans gone sour). 

(Source: TipRanks) 

As any CEO would do with this information, Capital One CEO Richard Fairbank, tried to put a positive spin on it, saying “The U.S. consumer remains a source of strength in the overall economy.” 

Translation: People who can’t keep up with their expenses because of inflation and the god-awful rise in the cost of living is our bread and honey. 

Apparently nothing… (Source: Imgflip) 

But while that’s been the case for banks thus far, when profits drop faster than a dang lead balloon, it’s hard to find a silver lining even with debt ridden Americans. 

According to the earnings report, the carnage is, well, a grand slam of dread. Capital One’s net income was chopped in half as it fell 61% to $531 million from $1.35 billion this time last year. EPS wasn’t spared either as it plunged from $3.52 to a nice little $1.38. 

(Source: Giphy) 

Net charge off's also spiked to $2.6 billion from its previous metric of $2.2 billion. 

To add insult to injury, Capital One is still reeling from its break-up with Walmart. The end of this credit card partnership cost them a cool $853 million. In fact, Walmart even took them to court over it. And if the narrative of this article wasn’t already bad enough for Capital One, they not only lost in court, but they’re now stuck with an $8.5 billion loan portfolio and the responsibility of servicing those loans. Talk about horrible closure…

(Source: American Banker) 

But again, let me remind everyone reading this: Capital One is popping today, up 2.15% at the time of this writing. Now of course, this could be trailing excitement from Capital One’s $35 billion acquisition of Discover Financial - where Capital One will get access to Discover’s credit card network, which is the fourth-largest in the U.S. 

(Source: Banking Dive) 

But even with that, not everyone is on board with it. Critics argue it could create another too-big-to-fail bank, while proponents say it’ll boost competition. Even some of Capital One’s customers are suing to block the deal. 

(Source: Reuters) 

But Fairbank, ever the optimist, says they’re “all in” by stating, “We believe this acquisition advances financial stability and increases competition in the industry, while also providing significant new benefits in the communities in which we operate”. 

(Source: Giphy) 

Plus, he also used the word’s non-profit in conjunction with this deal, and apparently that calmed some of the chaos. 

(Source: Yahoo Finance) 

But alas, when it comes to Capital One going forward, high interest rates and stretched consumers are a volatile mix. And while Capital One’s plan is to strengthen its domestic card and national consumer banking businesses, they’ll definitely need to navigate these muddy waters carefully (especially since the looming integration costs from the Discover deal have already cost them $31 million in Q2). 

(Source: Giphy) 

With that said though, maybe all this negativity is a good thing for Capital One’s stock and its investors. As we are seeing today, the stock is flying high… and with the massive bull trend it’s been on since October of 2023, the force must be strong with this one even after an earnings that’s chock full of losses. 

Stocks.News does not hold positions in companies mentioned.