Mortgages drag Capital One profits down

/ Source: The Associated Press

Capital One Financial Corp. on Thursday reported a 24 percent decrease in first-quarter earnings and lowered its full-year profit forecast, citing revised expectations for its mortgage banking business.

The McLean, Va.-based company, a credit card issuer that continues to expand into retail banking, provided revised earnings for 2007 of $7 to $7.40 per share. In January, Capital One gave guidance between $7.40 and $7.80 per share.

Capital One pointed to last year's acquisition of subprime lender North Fork, which operates banks in New York, New Jersey and Connecticut.

"Assuming no improvement in the unusually weak conditions now present in the secondary market for non-conforming prime mortgage loans, including Alt-A, we expect that reduced volumes and margins would result in our mortgage banking business delivering no incremental earnings for the balance of 2007," Chief Financial Officer Gary L. Perlin said in a statement accompanying Thursday's report. "Our expectations for consumer credit to return to more normal levels and the yield curve to remain flat are unchanged."

Alt-A mortgages are loans to borrowers with better credit than subprime borrowers but not quite prime.

Capital One said income totaled $675.1 million, or $1.62 per share, in the January-March period, up from $883.3 million, or $2.86 per share, in the year-ago quarter.

Revenue grew to $3.43 billion from $3.07 billion last year.

The numbers missed the average analyst estimate of $1.98 per share on revenue of $4.1 billion, according to a poll by Thomson Financial.

Capital One's total bank deposits at the end of the first quarter were $74.5 billion, more than double the $35.4 billion at the end of the first quarter of 2006. First-quarter 2007 results include North Fork. The company said it has opened 16 new branches since the beginning of 2007.

In the company's other business segments, U.S. card business net income totaled $495.3 million for the first quarter, compared with a record $602.8 million in the first quarter of 2006.

Capital One's auto finance business reported net income for the quarter of $44.4 million, down from $69.4 million in the year-ago period. Net income in the company's global financial services area dropped to $74.8 million, compared with $113.5 million, due to ongoing challenges in the United Kingdom.

Capital One reported its earnings after markets closed Thursday.

Its shares closed down 34 cents to $77.34 on the New York Stock Exchange, then shed $3.75, or nearly 5 percent, after-hours. In the last 52 weeks, shares have traded in range from $69.30 to $87.50.