WASHINGTON: Capital One has slipped up on Main Street banks' victory lap. A slew of mid-sized lenders this week announced fourth-quarter earnings that beat estimates as Wall Street giants faltered.
The credit-card titan, though, fell short as its provisions for loan losses rose.
Though small, it's a sign that an industry slowdown may be more likely than an earnings boom.
The Virginia-based firm actually did fairly well in the fourth quarter. Earnings jumped 17 percent compared with the final three months of 2013.
That's even more impressive considering that revenue was only up about 5 percent. That performance is at least as good, if not better, than most of its regional rivals and easily bests most big Wall Street mega-banks.
Its efficiency ratio, which measures how much revenue is spent on costs, is among the industry's lowest at 56.5 percent.
The bank run by Richard Fairbank only undershot the sell-side analysts' consensus estimate by a penny. JPMorgan , on the other hand, was shy by 12 cents.
But it leaves Capital One bucking the trend set by the likes of BB&T, KeyCorp, US Bancorp, M&T and PNC . Rising credit problems caused Capital One's miss.
The bank had to set aside $1.1 billion in the three months to December to cover potential bad loans. That's a 16 percent jump from the end of 2013 while its credit-card portfolio increased just 6 percent.
It's not alone. Wells Fargo announced an even bigger addition to its rainy day fund, socking away 34 percent more than 2013's final quarter.
These numbers aren't as bad as they sound: credit losses across the industry are at or near all-time lows, so some reversion to more normal levels was to be expected.
That said, there have been growing indications of banks making riskier loans, especially for car purchases.
In the meantime, there's little sign of the Federal Reserve hiking interest rates enough to boost banks' bottom lines any time soon. That means lenders' current earnings performance may be close to as good as it gets. Of course, it's not always smart to rely on analysts' estimates. As JPMorgan boss Jamie Dimon quipped this week in Davos: "We don't miss your estimates, the analysts miss the actuals."
If those start including more loan-loss provisions, though, that spells a bigger problem.
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