CapOne Remains ‘Very Bullish’ on Auto, CEO Says

Subprime auto originations for the second quarter were at $6.5 billion at Capital One Financial Corp., and included “a higher portion of subprime,” Chief Executive Richard Fairbank said during yesterday’s earnings call.

Immediately following the recession, there was a unique opportunity in auto finance which the bank “vigorously pursued,” Fairbank said. However, as competition intensified, and subprime players adopted “more aggressive underwriting practices,” CapOne “chose not to follow,” he added.

“As a result, our subprime origination stayed essentially flat for a few years before shrinking in 2015, despite growth in the subprime market. Our prime originations continued to grow during this period,” Fairbank said on the call. “In the first half of 2016, these competitive practices seemed to have subsided somewhat, which enabled us to grow our subprime originations.”

Despite the uptick in its subprime portfolio, CapOne remains “very vigilant” about competitor practices and does continue to expect a gradual decrease in margins, and a gradual increase in charge-offs as the cycle plays out, Fairbank said.

For the second quarter, net charge-offs and 30-day delinquencies were steady year over year, at 1.20% and 5.59%, respectively.

Used-car prices — which have been at record levels — are “certainly a matter of concern, and we said pretty much there’s only one way for them to go from here,” Fairbank said. However, the bank isn’t currently seeing any “real degradation” in the business, he added.

“The main point I want to leave with you is, in the card business and really in the auto business, we remain bullish about the opportunity and very bullish about the business that we have been able to generate,” he said.