NEW YORK (AP) — Capital One's quarterly net income plunged 90 percent, weighed down by acquisition costs, payouts required under a federal settlement and a pile-up of reserves to cover bad loans, the company said Wednesday.
Earlier in the day, the government's new consumer watchdog agency and a banking regulator ordered Capital One Bank to pay $210 million in refunds and fines. The Consumer Financial Protection Bureau said Capital One used "deceptive" marketing to lure credit card customers into buying services.
The company said the total hit to income from these settlements is approximately $176 million, including $116 million for customer refunds and $60 million in civil penalties.
Capital One Financial Corp. said late Wednesday that its second-quarter net income dropped to $92 million, or 16 cents per share. That's down from $911 million, or $1.97 per share, in the same quarter of last year.
Wall Street analysts had expected earnings of 57 cents per share on revenue of $5.1 billion, according to the data provider FactSet.
Capital One's stock sank 9 cents to $54.80 in after-hours trading Wednesday. It had lost 94 cents, or 1.7 percent, during the regular trading day.
The company, based in McLean, Va., said operating expenses for the quarter soared by $625 million, mainly as a result of the company's acquisitions of ING Direct and HSBC's U.S. credit card business.
The bank nearly tripled its reserves for unpaid loans, to $1.68 billion. Of that amount, $1.2 billion is to protect against losses from HSBC's U.S. credit card business.
The $2.6 billion purchase of HSBC's U.S. card business closed in May, and the $8.96 billion purchase of ING Direct closed in February. Accounting rules require Capital One to set aside reserves to cover uncollected balances, which consumed a large portion of its quarterly earnings.
Net interest income rose 17 percent to $4 billion, helped by picking up assets from HSBC. Non-interest income sank 31 percent to $1 billion.