By Andrew R. Johnson
Capital One Financial Corp. (COF) said Monday its key capital
levels would come in higher during a hypothetical economic downturn
than it previously estimated in March.
The McLean, Va.-based lender, which generates the bulk of its
revenue by issuing credit cards, said its Tier 1 common ratio would
fall to a minimum of 9.9% during a nine-quarter period under a
mid-year "stress test" Capital One and other large banks are
required to conduct by the Dodd-Frank Act.
In March, it estimated that ratio would fall to a minimum of
9.2% during a slightly different nine-quarter period.
Capital One also said its projected loan losses under the most
recent test would total $16.4 billion, down from an estimate of
$17.5 billion in the previous review.
The eighteen banks required to conduct the mid-year Dodd-Frank
stress tests this year must disclose their results between Sept. 15
and Sept. 30.
The Dodd-Frank stress tests are separate from the Federal
Reserve's Comprehensive Capital Analysis and Review, or CCAR,
exams, which also aim to gauge large banks' capital strength during
a severe downturn. Those tests are used to determine whether
lenders will gain regulatory approval to repurchase stock and pay
dividends to shareholders, and require the banks to maintain a
minimum Tier 1 common ratio of at least 5% under their capital
plans.
Capital One said Monday that its hypothetical economic scenario
assumed that the U.S. unemployment rate would reach a peak of 12.2%
and home prices would decline 25% at their lowest point during the
nine-quarter period that lasts through the second quarter of
2015.
In March, Capital One said the Fed didn't object to its plan of
raising its dividend to 30 cents from 5 cents, its first dividend
increase since slashing the amount in 2009 amid rising loan
losses.
More recently, the bank said it would soon begin buying back
shares under a $1 billion repurchase program after selling a
portfolio of Best Buy Co. Inc. (BBY) credit-card loans to Citigroup
Inc. (C).
Capital One's shares were up 1.1% at $68.58 in recent
trading.
Citi, KeyCorp (KEY) and Goldman Sachs Group Inc. (GS) also
released the results of their mid-year stress tests on Monday,
projecting higher capital levels than previously estimated in
March.
Write to Andrew R. Johnson at andrew.r.johnson@dowjones.com
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