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Money spinner – Capital One’s domestic credit card business


Mar. 5 2015, Updated 7:57 p.m. ET

HSBC’s credit card acquisition helped Capital One

Capital One (COF) offers a wide selection of credit cards to its customers. It offers travel, rewards, business, co-branded, and many other varieties of credit cards. The bank is strong because it’s a legacy business.


Capital One improved its position by acquiring HSBC’s US credit card and private label credit card business in mid-2012. This helped the bank acquire nearly 27 million new customers. It also acquired $27.8 billion in credit card receivables and $327 million in net assets.

A cause of concern was the declining yield on credit card loans. The average yield for 2014 stood at 14.26%. It was a fall of 101 basis points, or bps, from 2013. This acquisition helped the bank increase its market share even more.

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Domestic credit card business remained sluggish in 2014

The total revenue from the domestic credit card business was $13,621 million. This was a decrease of 4.66%—compared to 2013. The fall was mainly driven by the fall in net interest income. Non-interest income remained stable in 2014.

The fall in net interest income was due to yields falling on domestic credit card loans. The average yield on domestic credit card loans was 15.27% in 2014. This was a sharp 101 bps—compared to 2013. However, there was a 65 bps decrease in the charge-off rate and a 16 bps fall in the delinquency rate. This was positive.

The fall in yields and a better delinquency and charge-off was an industry-wide phenomenon. Other banks like Wells Fargo (WFC), U.S. Bank (USB), and PNC Bank (PNC) also saw similar trends. Wells Fargo is the largest bank holding in the Financial Select Sector SPDR (XLF). It has an 8.64% weight in XLF.


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