In June, Capital One Financial (COF) entered into a definitive agreement to buy ING Direct, subsidiary of ING Groep (ING), for $9 billion in stock and cash. This was supposed to fetch further presence in the direct banking market.
In July, Capital One announced a follow-on public offering of $2 billion. You guessed it right; it was to partly fund the acquisition of ING Direct.
The moral of the story: Although the second-quarter would have reaped the benefits, the third quarter is going to pay for that. But let's see how the third quarter of this year has turned out to be.
Total interest income hardly showed any improvement. Why? Isn't the increasing loan portfolio reaping any benefits? Unfortunately, we see around 2% increase in the non-performing commercial real estate loan portfolio and nearly 5% increase in the non-performing consumer real estate loan portfolio. Needless to say, the US real estate market is taking its toll on the company's performance.
You must be interested to know what type of loans the company mostly holds to get an idea of its future performance. Although it focuses mainly in credit card services, its loan portfolio holds over 20% in the consumer and commercial real estate segment. Twenty percent is pretty large considering today's real estate market.
Coming to the credit card section, there has been slight (perhaps only a few tenths of a percent) change in the net charge-offs, where the international card section showed better improvement compared to the domestic counterpart. It must be noted that the return on investment is always better in the international arena.
Net income from consumer banking incurred a hit since the last quarter this year, down to $296 million from $446 million, which is attributed to the various non-interest expenses. Should we say corporate taxes
Same was the case in the commercial banking section. Even though revenues have gone up to $412 million this quarter, over $395 million previous quarter this year, we see no remarkable difference in the bottom line.
Increasing loan and deposit balances still make for a strong quarter, and with the issuance of the $2 billion in common stock, the Tier I ratio has gone up.
It must be noted that its net profit margin of 23.67% is still better than Wells Fargo's (WFC) 19.97%, JPMorgan Chase's (JPM) 17.94%, and Citigroup's (C) 16.16%. And although lower than that of Discover Financial Services (DFS) and American Express Co. (AXP), its return on average assets is pretty tight, more decent than the others.
What I would really want to see now is proper execution of the money it's got in its hands, added benefits from the acquisition and improvement in the bottom line Let's watch a few more quarters ahead for these.