Capital One Financial Corp. (NYSE: COF)
A Goldman Sachs analyst today is predicting that losses at
the biggest credit card companies will increase by 25% in the coming year as
unemployment climbs and borrowers are unable to pay back the money they have
outstanding. This increase would mean close to an 8% default rate compared to a
current 6.35% rate.
October Statistics Sobering
October data for the credit card industry has already shown
increases in metrics that will affect the profitability of the credit lenders. Both
charge-offs and delinquencies rose during the month of October. Most shares of
credit issuers fell on Monday and continued to fall on Tuesday along with the
market.
Too Many Issues to Profit
With a sure recession in process, unemployment increasing,
and the current credit crisis affecting the consumer’s home refinancing
options, it should be no surprise that credit card companies will also see
profits fall sharply over the next 12 months.
The Trade
Analysts are downgrading Capital One’s ability to profit in
the current quarter, the next quarter, and the full year. Next quarter’s
earnings growth is currently expected to fall 31% compared to the same period a
year ago. Sales are also slowing next quarter according to analysts, 5.7%. If
there is a rally in the stock it would be a good opportunity to take a short
position and being to build into a large position with additional bad news to
come.