By Alistair Barr
The credit-card industry probably won't grow or will shrink in
coming years as a powerful wave of consumer de-leveraging washes
over the business, Capital One Financial Corp. (COF) Chief
Executive Richard Fairbank said Wednesday.
Fairbank also said the credit-card and banking company is seeing
encouraging signs of stabilization in some of its consumer
businesses, but stressed that it remains cautious.
"In this era, de-leveraging of the consumer will be a very
powerful force," Fairbank said during a presentation to analysts
and investors in New York.
The CEO said he was in favor of consumers reducing their debts
because this will mean they will be less likely to miss credit-card
payments in future.
"It's very healthy to have a de-leveraged consumer," Fairbank
added. "We as lenders will be paid through better credit
performance."
Credit-card companies such as Capital One and American Express
Co. (AXP) have been hit hard as surging unemployment leaves more
people struggling to repay debts racked up on their credit
cards.
Fairbank said Wednesday that credit-card losses have been very
closely tied to unemployment rates and house-price depreciation
during this recession.
"As home prices start to stabilize and there's a line of sight
for unemployment reaching a peak, that's encouraging," the
executive added.
He also noted "inflexion points" in some parts of Capital One's
consumer businesses, where elevated levels of loan charge-offs are
close to stabilizing.
Still, expenses from adding to loan-loss provisions will remain
elevated over the near term, Fairbank said.
Over the next year or more, Capital One's consumer businesses
will be in "shrinking mode rather than growing mode," he added.
The overall credit-card industry will likely be similar to the
1990s, when there was more of a level playing field and competitors
differentiated themselves through underwriting skills, rather than
by "throwing spaghetti against a wall and seeing what happens," he
explained.
"The difference is that the card business will be flat to
shrinking rather than growing," Fairbank said.
While new credit-card regulations may reduce industry returns a
bit, the current revenue model for the business will remain intact,
he added. The changes will also present opportunities for Capital
One because they play to the company's competitive strengths,
Fairbank said.
Capital One shares were recently trading at $39, up $1.58, or
4.2%. The shares are up 22% so far this year.
-By Alistair Barr; 415-439-6400; AskNewswires@dowjones.com