Magazine article American Banker

Capital One's Erratic Stock Returns to Investors' Favor

Magazine article American Banker

Capital One's Erratic Stock Returns to Investors' Favor

Article excerpt

By AARON ELSTEIN

Few companies illustrate investors' love-hate relationship with financial services stocks this year better than Capital One Financial Corp.

Last week was a Wall Street love-in for Capital One, as investors bid up its shares 15.4%, to $116 by Friday afternoon, outperforming such banking companies and other competitors as MBNA Corp., Providian Financial Corp., and American Express Co. For the year the stock was up a stunning 115.5%.

But it hasn't been a smooth ride to the top.

In the four days from Oct. 5 through Oct. 8, Capital One shares plunged 36%, to $62.0625, from $96.625.

At the time, all financial stocks were taking a beating. But Capital One was hit especially hard because it gets funding from selling securities backed by credit card receivables. Investors shunned all but the safest bonds in August and September, and with no assurance that the market for Capital One's asset-backed securities would return soon, they feared its rapid growth was over and dumped the stock.

But in recent weeks investors have resumed buying asset-backed securities from credit card issuers, and Capital One has cheered up investors with solid earnings reports and optimistic predictions. The company expects 1999 earnings per share to grow 30%.

Still, investors tend to binge or purge this stock. Capital One shares fell 8.9% the week of Dec. 5 after the chief financial officer said he would leave the company.

Though most analysts dismissed the notion that the CFO's exit was evidence of management turmoil, they agreed that Capital One is one of financial services' most volatile stocks. …

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