Magazine article American Banker

Wall Street Offers Mixed Reviews for Capital One

Magazine article American Banker

Wall Street Offers Mixed Reviews for Capital One

Article excerpt

Capital One Financial Corp.'s stock won both an upgrade and a downgrade from Wall Street on Tuesday.

The Falls Church, Va., credit card company and auto lender has been the subject of recent rumors that the New York insurer American International Group may be interested in acquiring it. The speculation hit the market after the British banking giant HSBC Holdings PLC announced last month that it planned to acquire Household International Inc., a deal that opened the possibility for further purchases of monoline companies by diversified financial companies.

Jennifer Scutti, a New York-based analyst with Canadian Imperial Bank of Commerce's CIBC World Markets, downgraded Capital One on Tuesday to "market weight" from "sector perform." Ms. Scutti cited concerns over losses in the company's auto financing business, which she says are currently higher than those reported by some of its competitors. She also expressed concern over consumer credit quality.

In a telephone interview Tuesday, Ms. Scutti said her downgrade also was a valuation call. The stock's value has increased roughly 27% since HSBC's deal for Household sparked the consolidation rumors.

She said she is not jumping on the consolidation bandwagon. Capital One probably will not go the way of Household, which, unlike Capital One, needed additional financing, Ms. Scutti said. Also, Capital One's management likely does not want to sell, she said. "Management is fiercely independent and they like running their own shop."

Since the company still has an informal memorandum of understanding with regulators over capital and loan-loss reserve issues that were disclosed in July, Ms. …

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