Capital One Financial Corp. is expecting a $30 million, “one-time increase” in losses, due to an accelerated policy for charging off bankrupt accounts, Chief Financial Officer Scott Blackley said Wednesday on the bank’s first-quarter earnings call.
Capital One announced in the fourth quarter of 2016 that it would adjust charge-off timing. Now, Capital One will charge down a loan to the estimated collateral value within 60 days of a bankruptcy notification receipt — regardless of whether the consumer is current on loan payments.
Previously, Capital One avoided charging off a loan if the consumer was making payments. “For the year, accounting changes will increase our auto business’s charge-off rate by approximately 20 basis points,” Blackley said. “These losses were fully provided for in our 2016 allowance.” The bank’s charge-off rate for auto was up year over year, to 1.64%, from 1.60% in 1Q16, but down from 2.07% at yearend 2016. The bank’s auto net charge-offs were at $199 million in the first quarter, compared with $168 million in the same quarter the year prior.
In the first-quarter, Capital One originated $7 billion in auto loans, up from $5.8 billion at the same time a year prior, with “strong growth in prime, near-prime, and subprime,” Chief Executive Richard Fairbank said. He attributed that growth to a softening in the competitive intensity in the industry.
There are “reasons for caution” in auto finance right now, he added, citing declining auction prices and more indebted consumers. “Based on the competitive environment we see today, we expect to increasingly emphasize price and margin over volume in our origination strategies,” Fairbanks said.
