North Fork Report Is To-Do List for Cap One
Davis, Paul, American Banker
Capital One Financial Corp.'s third-quarter results showed that its fledgling banking division has regained some momentum after the 2005 hurricane season, and now it appears to be facing new challenges from its pending acquisition of North Fork Bancorp.
On Friday, North Fork provided a cold-eyed glimpse into Capital One's future operations around New York. The $59 billion-asset Melville, N.Y., company reported profits that fell 8% from the second quarter and 14% from a year earlier, to $203 million, or 44 cents a share, which missed the average of analysts' estimates by 4 cents, according to Thomson Financial.
Two days earlier Capital One had reported that earnings from its banking operations rose 7% from the second quarter, to $46.2 million. However, for the second quarter the $95.5 billion-asset McLean, Va., company's division, created by the November acquisition of Hibernia Corp. in New Orleans, had reported that earnings were flat from the first quarter.
Capital One is expected to complete its $14.6 billion acquisition of North Fork this quarter, and Lana Chan, an analyst at Bank of Montreal's BMO Capital Markets, suggested in an interview Thursday that Capital One would face challenges.
On top of a poor profit outlook at North Fork, Capital One may also have difficulty retaining the seller's customers, she said.
"The earnings were weak" at North Fork, Ms. Chan said. "The environment since they announced the acquisition has gotten more competitive."
Its revenue slid 6% from the second quarter and 5% from a year earlier, to $595.2 million. The third-quarter total included $4.5 million of securities gains and $9.7 million of trading gains.
But Ms. Chan said she also expects competition for North Fork clients to intensify once Capital One rebrands its 351 branches. "North Fork is a very well-known brand. Rebranding is going to be challenging, given how everyone is aggressively going after incremental deposits."
North Fork has lost deposit share. Its share of the New York market slipped 58 basis points from a year earlier, to 4.22% as of June, according to data from the Federal Deposit Insurance Corp.
Richard Fairbank, Capital One's chairman and chief executive officer, indicated Wednesday that he is in no rush to overhaul North Fork's business model.
"We want to be very careful to operate very surefootedly with respect to this integration and the rebranding," he said during an earnings conference call. "I've met with a lot of customers and the associates, and I think our big message is ... this is not Capital One coming in to radically change the business model. …