Reuters reports that Capital One Financial (NYSE: COF) reported that its profit tumbled 40% and its earnings came in 10 cents a share less than expected. Its loan losses spiked -- cutting into profits.
In particular, Capital One made $1.21 a share and analysts had expected $1.31. And its provision for losses more than doubled from the same period in 2007. According to PR Newswire, Capital One's provision increased 109% from $397 million to $829 million.
The problem? Consumers are not paying off their credit cards like they did when they were using their house as an ATM. With housing prices down 15% and three million foreclosures underway, consumers just can't afford to pay off their credit cards. And Capital One is expecting a big jump in bad debt. Its stock has fallen 4.9% after hours.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter
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