As Americans load up on debt in the face of high interest rates, credit card giant Capital One is cautioning the bank's profits will likely take a hit in the coming months as growing delinquencies start translating into expected losses—echoing warning signs that mounted before the Great Recession....
The chief said charge-offs, meaning the rate at which banks take on losses for debt they no longer believe will be paid off, haven't yet caught up to delinquencies, but he acknowledged it's likely they will also return to 2019 levels around the middle of the year—lagging a quarter or two behind the industry, as happened during the pandemic and global financial crisis.
Though he"feels very good about the business," Fairbank attributed part of the projections to expectations that the labor market will face a"material worsening," with the unemployment rate rising from"today's very low levels" of 3.5% to above 5% by the end of the year—suggesting some 2.5 million people could lose jobs.first-quarter earnings of $887 million, or $2.31 per share—falling well short of average analysts expectations calling for income of $3.
Much of the hit was due to a staggering increase in net charge-offs, which climbed to $1.7 billion in the quarter from $845 million one year earlier—reflecting uncertainty in domestic credit and the commercial real estate market. Capital One shares fell nearly 2% on Friday and are up about 1.5% this year, compared to a 8% gain for the S&P 500.a record high above $4.8 trillion in February, tacking on to a growing debt load that's accelerated over the past year.
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