Capital One Financial absorbed a financial blow in the second quarter from the unraveling of
Quarterly earnings at the McLean, Virginia-based card issuer took an $853 million hit when the end of the Walmart deal inflicted a pair of impacts.
First, Capital One's earnings were hurt by the addition of $826 million to its allowance for credit losses as a result of the deal's termination. Under the deal's terms, Capital One and Walmart had agreed to share the impact of credit losses.
As part of the agreement to terminate the partnership, Capital One is holding onto the $8.5 billion Walmart-card loan portfolio, which explains why it had to bolster its allowance for credit losses so substantially in the second quarter.
The second result of the Walmart deal's termination was a $27 million reduction in net revenue in Capital One's domestic card business, though the lender also said that its revenue margin increased because it stopped sharing revenue with the Bentonville, Arkansas-based retail giant.
Other items that eroded Capital One's second-quarter profits included $31 million in expenses related to its integration of Discover Financial Services. Capital One's blockbuster acquisition of Discover
Including those unusual items, Capital One reported quarterly net income of $597 million, or $1.38 per share, which was down more than 50% from its results in both the second quarter of 2023 and the first quarter of this year.
Capital One's net income in the year-ago period was $1.4 billion, or $3.52 per share. In the first quarter of 2024, the company posted net income of $1.3 billion, or $3.13 per share.
During the second quarter, total net revenue at the $480 billion-asset bank rose 1% from the first quarter, as period-end loans held for investment climbed by 1%, and average deposits rose by the same percentage.
Chairman and CEO Richard Fairbank said in a statement that Capital One is working hard to complete its acquisition of Discover. Last week, the company announced
During the second quarter, Capital One's marketing costs were 20% higher than in the same period a year ago. And Fairbank promised Tuesday that marketing spending would rise even higher in the back half of 2024.
"We continue to lean into marketing," he told analysts, explaining that Capital One's investments in technology have made it easier for the company to tailor offers to individual consumers. "We continue to see great opportunities really across our businesses."
Capital One and Walmart announced back in April that they were ending their short-lived credit-card partnership. The deal's termination followed
Fairbank indicated Tuesday that the demise of the Walmart partnership has not soured Capital One on entering into future partnerships with retailers to offer store-branded credit cards.
Capital One has walked away from partnerships in situations where the retailer was less focused on building a franchise and more driven by a quest for profits from the deal, he said during the company's quarterly earnings call.
"So we're still very much a believer in the card partnership business," said Fairbank, who co-founded Capital One in 1988. "But the key is, we're going to be selective."
