Capital One earnings slide on loan losses

Credit card issuer Capital One posted a decline in fourth-quarter earnings after taking a provision of approximately $1.9 billion for loan losses. The provision was made up of about $1.3 billion in charge-offs and an allowance build (money added to the company's reserves) of around $650 million.

"We're really seeing a consumer-led worsening" of the economy, the Washington Post reported CEO Richard D. Fairbank as saying in a conference call. "Nobody knows how bad this environment will get."

Still, Capital One said its credit cards performed well. The U.S. Card division saw earnings climb 54.8 percent from the year before as revenue gains and expense cuts "more than offset increased charge-offs and allowance build," the company said in its earnings release. Revenue strength was attributed to pricing changes in some of Cap One's products.

Echoing statements from other credit card issuers, Cap One said cardholders had problems paying their bills in the final months of last year. "Charge-offs rose in the fourth quarter of 2007 to 5.40 percent from 3.82 percent in the fourth quarter of 2006, and delinquencies rose to 4.95 percent from 3.74 percent," Capital One said.

Consumers may continue to have trouble repaying their credit card debt as 2008 gets under way. "The company expects the U.S. Card managed charge-off rate to be in the mid-6 percent range in the first half of 2008," Cap One said. That could mean stricter lending standards for credit card applicants.