Below are key drivers of Capital One's value that present opportunities for upside or downside to the current Trefis price estimate for the bank:
Capital One is one of the largest banks in the United States, whose banking and non-banking subsidiaries market a variety of financial products and services. The corporation's principal subsidiaries include Capital One Bank (USA) and National Association (COBNA) which currently offer credit and debit card products, other lending products, and deposit products; and Capital One, National Association (CONA) which offer a broad spectrum of banking products and financial services to consumers, small businesses and commercial clients.
In June 2011, Capital One bought the American banking operations of ING Direct for $9 billion which significantly boosted Capital One's consumer and commercial loans portfolio.
Capital One also agreed to buy the United States credit card business of HSBC Holdings for $2.6 billion which boosted Capital One's credit card loans by more than $30 billion. The company is also expected to realize cost saving of about $350 million from the business combination.
In late 2015, Capital One acquired GE's healthcare financing unit - adding $8.5 billion in healthcare loans to its total portfolio.
The Credit Cards division is the main source of value for Capital One for the following reasons
Capital One's Credit Card division accounted for 63% of the firm's total revenues in 2016 compared to 26% from the Consumer Loans division and 11% from the Commercial Loans division.
As a result of the economic downturn, the U.S. government decreased the prime loan interest rate (the interest rate that commercial banks charge their most credit-worthy customers) from levels of around 8.25% in late 2007 to 3.25% in 2008. The prime rate remained at this level for more than 7 years, before being hiked on four separate occasions - in December 2015, December 2016, March 2017 and June 2017 - by 25 basis points (0.25%) each to bring it to 4.25%. As economic conditions improve, interest rates will eventually return to historical levels, at which point Capital One's revenues will be positively impacted.
Capital One also operates in the cashless payment solution market. This includes payments using credit cards. The market for such transactions is growing at a rapid pace. Consumers are moving toward cashless transactions in large numbers, particularly in international markets where credit and debit cards are becoming more prevalent. We expect significant growth in this segment in the near future as more customers and merchants embrace credit / debit card payment solutions.
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