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Capital One’s Commercial Banking Business amid Reduced Taxes

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Expected performance

The performance of Capital One Financial Corporation’s (COF) Commercial Banking business is primarily influenced by the demand for loans by corporations. Higher demand by corporations is expected to lead to a rise in the business’s loan book, which could boost its interest income. The demand for loans by corporations is dependent on the prevailing business and trade environment.

Supportive government measures, a healthier economy, and positive global economic measures are positive factors for corporations. The Tax Cuts and Jobs Act has benefited corporations with higher cash flow, as corporate taxes have been reduced. As a result, Capital One’s Commercial Banking segment’s second-quarter interest income could be negatively impacted, as corporations would require fewer loans. This trend could impact Capital One’s loan book.

Commercial Banking segment’s Q1 performance

Capital One’s (COF) Commercial Banking segment generated total net revenues of $723.0 million in the first quarter, compared to $724.0 million in the first quarter of 2017. The business garnered net interest income of $536.0 million in the first quarter, which reflects a YoY (year-over-year) fall of 5.0%.

COF’s Commercial Banking segment’s non-interest income stood at $187.0 million in the first quarter, representing a YoY rise of 18.0%. This increase resulted from a rise in service charges, other fees, and sale activities. Among Capital One’s competitors, American Express (AXP) could witness a decline in its commercial loans due to reduced corporate taxes.

Capital One, Mastercard (MA), American Express, and Discover Financial Services (DFS) comprise ~6.2% of the iShares US Financials ETF (IYF).

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