Capital One Slams Door on GreenPoint Mortgage

The latest victim of the subprime crisis, Capital One Financial Corp. lowered its 2007 earnings outlook after halting residential-mortgage origination operations at its wholesale mortgage banking unit GreenPoint Mortgage. Citing near-term profitability challenges given current conditions in the secondary mortgage markets and the likelihood that markets for prime, non-conforming products will remain challenging for the foreseeable future, the ninth-largest U.S. bank by market value said GreenPoint, which specialized in nonconforming loans, will cease making new loan commitments immediately, but continue to meet contractual obligations for commitments to customers with locked rates already in the pipeline. The company will close GreenPoint’s California headquarters along with 31 locations across 19 states, resulting in the elimination of some 1,900 jobs. The company estimated an after-tax charge of $860M ($2.15/share) related to the closure, including $110M related to ongoing operations, and therefore revised its 2007 earnings forecast down by that amount to $5/share. Without the charge, Capital One said it would have maintained its earlier outlook as its other businesses remain on a “solid trajectory,” with revenue growth and credit performance in line with expectations. “Capital One’s other businesses are supported by ample liquidity and funding including deep access to deposits, a ‘stockpile’ of subordinated credit card funding in place that allows approximately $9B of AAA credit card funding going forward, and a $25B portfolio of highly liquid securities,” said CFO Gary Perlin. Capital One noted that it will retain a $12.5B mortgage portfolio that includes $680M of second mortgages originated by GreenPoint. Capital One will continue to originate and sell traditional mortgages through its 750 bank branches.

Sources: Press release, Wall Street Journal
Commentary: Capital One Financial: The Latest Casualty of the Mortgage Crisis • No Bids In Corporate Bond Market
Stocks/ETFs to watch: COF
Earnings call transcript: Capital One Financial Q1 2007

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