If you doubt the impact of stimulus on the economy, at least in the short term, take a look at Capital One Financial’s (COF) August card data, wherein charge-offs and delinquencies for both credit cards and auto loans were lower than in the year-ago period… when there was no COVID-19 and the unemployment rate was around 3.7% (instead of the 8.4% in August). While the COVID-19 recession is by no means over, and there are still plenty of questions as to what future stimulus, if any, will look like, I would argue the odds are improving that these efforts will help “tide the consumer over” until the economy recovers, leading to lower overall loan loss rates than previously expected.
Capital One remains an odd sort of bank, and really more of a bank-consumer finance hybrid. While it does make commercial and consumer loans, cards dominate the business. Likewise, while the bank does have a deposit-gathering franchise, including both branch-based banking and online operations, the overall cost of funds is still relatively high. Appreciated for what it is, I do believe that Capital One is undervalued today, but that’s the rule and not the exception these days in the banking sector, and I can see some near-term volatility risk from credit risk and capital returns.
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Capital One Financial Offers A Middle Ground For Quality, Value, And Risk
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