Release Date: April 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Q & A Highlights
Q: So Rich, maybe just start off on credit. It sounds like you're running a little bit ahead of what you had outlined in the last quarter. But when you put aside the time the tax refund, maybe just talk about what you're seeing from the consumer? And do you think we've now reached the inflection where we can more closely follow seasonal patterns? And once the noise settles, do you think we're kind of back at that 15% level that you had outlined?
A: Richard D. Fairbank - Capital One Financial Corporation - Founder, Chairman, CEO & President: Thank you, Ryan. Look, I think that the story continues to be one of -- well, in terms of -- there's sort of the consumer itself. Let's just talk about the consumer for a second and then let's talk about Capital One's credit performance but just the health of the consumer. I think the U.S. consumer remains a source of strength in the economy. The labor market remains strikingly resilient. Rising incomes have kept consumer debt servicing burdens relatively low by historical standards. And when we look at our customers, we see that they have higher bank balances than before the pandemic, and this is true across income levels.
Q: Rich, if I could switch for a second to the Discover acquisition. There's been a lot of talk around deal approval, particularly focusing around potential antitrust issues within the Card business. And I was wondering if you could share your thoughts and perspective on that issue if you've heard anything from regulators but also just to hear how you are thinking about that issue?
A: Richard D. Fairbank - Capital One Financial Corporation - Founder, Chairman, CEO & President: Okay. Thank you, Mihir. So we have filed our merger applications with both the Fed and the OCC and we are engaged with the -- sorry, with the DOJ as they, of course, play a key role in advising the Fed and the OCC on competition questions. We believe our applications make a very compelling case for approval. We believe strongly that this merger will increase competition among banks and credit card issuers and payment networks, and provide significant benefits for consumers, merchants and the communities that we serve. While some have raised concerns about competition, we believe that the facts in favor of the deal will be compelling.
Q: Rich, I want to make sure I fully understand what you're describing in terms of credit. The framework is that charge-off rates will be about 15% higher than '18, '19 levels in the near term. But now with tax refunds, it might be a little bit higher than that, that over time, it will converge back towards slightly above '18, '19 levels. When I look at the delinquencies. And 1 of the things we've observed is that role from delinquency to charge-off is actually higher than it has been pretty much at any time in recent history. Does that suggest that delinquencies actually need to get back below '18, '19 levels to achieve that level of charge-off performance?
A: Richard D. Fairbank - Capital One Financial Corporation - Founder, Chairman, CEO & President: So Rick, there's a lot. First of all, let me clarify some of the things that you were saying weren't exactly I think as we intended to state them. So let me just -- so we talked about -- so yes, we talked about credit. We're saying credit settling out. We said in the very near term, where charge-offs are tend to be higher in the first half of the year. In the near term, based on extrapolation from delinquency buckets and roll rates we would expect them to settle out at 15% higher than pre-pandemic. That was a near-term forecast. That was not an annual forecast. And then you -- just to clarify your comments that, and over time, it will converge back to slightly above 2018 and 2019. I just want to say those are your words, not ours. We have not given guidance on full year charge-offs. We tend not generally to give guidance on full year charge-offs. But we very much like to give you the feel of how things are going.
Q: I guess back to the Discover combination, any update to your thoughts around the timing of the deal close? I know the Fed, the OCC just extended the comment period. And I know you put out there, you expect late '24, early '25. So any change in terms of your expectation around the timing of the close or any of the key financial metrics that you set out?
A: Richard D. Fairbank - Capital One Financial Corporation - Founder, Chairman, CEO & President: Okay. Thanks, John. So let me comment on the Federal Reserve and the OCC extending the comment period. It's standard practice for the Federal Reserve to extend the comment period on bank mergers. We expected the extension and we don't take any signaling on our deal from the Fed's decision here. So with respect to the overall timing, the Fed and the OCC typically take several months to work through bank merger applications in consultation with the DOJ on competition questions and they engage frequently with our team along the way. And of course, that process is underway. And we continue to have the same views about the timing of all of this that we did at the time of the announcement.
Q: Rich, putting aside the tax refund thing, I mean, yours -- we're sitting here looking you've still got what has been a somewhat persistently high inflation environment and the potential for increases in unemployment, given the nature of your portfolio, you've got kind of a lower end consumer and higher-end consumer. How do you think about that, those factors in terms of thinking about what type of charge-off level you're going to reach over some period of time, not a particular point in time, but over some point in the next year or 2, like where you think about that -- they driving a higher level of charge-off expectations? Or how should we think about that?
A: Richard D. Fairbank - Capital One Financial Corporation - Founder, Chairman, CEO & President: Moshe, so our -- I think what you're partly getting at is because we have -- part of our portfolio is subprime consumers, how do we feel about how they're performing and sort of in the context of an environment of higher inflation and so on. Let me just comment a little bit about the subprime consumer. In the global financial crisis, we observed that credit metrics in subprime moved earlier in both directions, subprime -- we saw that, but then we saw sort of everything move proportionately, in fact, subprime moved frankly, somewhat less proportionately than prime as a multiple, but obviously, all portfolios worsened quite a bit during the global financial crisis in the pandemic, subprime credit improved more and more quickly than prime but it also began to normalize more quickly, too. And of course, that's in the context
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
