Capital One 2005 Annual Report Download - page 32

We believe that we have meritorious defenses with respect to these cases and intend to defend these cases vigorously. At the
present time, management is not in a position to determine whether the resolution of these cases will have a material adverse
effect on either the consolidated financial position of the Corporation or the Corporation’ s results of operations in any future
reporting period.
In addition, several merchants filed class action antitrust lawsuits, which were subsequently consolidated, against the
associations relating to certain debit card products. In April 2003, the associations agreed to settle the lawsuit in exchange for
payments to plaintiffs and for changes in policies and interchange rates for debit cards. Certain merchant plaintiffs have opted
out of the settlements and have commenced separate lawsuits. Additionally, consumer class action lawsuits with claims
mirroring the merchants’ allegations have been filed in several courts. Finally, the associations, as well as certain member
anks, continue to face additional lawsuits regarding policies, practices, products and fees. b
With the exception of the Interchange lawsuits and the Amex lawsuit, the Corporation and its subsidiaries are not parties to
the lawsuits against the associations described above and therefore will not be directly liable for any amount related to any
possible or known settlements of such lawsuits. However, the Corporation’ s subsidiary banks are member banks of
MasterCard and Visa and thus may be affected by settlements or lawsuits relating to these issues, including changes in
interchange payments. In addition, it is possible that the scope of these lawsuits may expand and that other member banks,
including the Corporation’ s subsidiary banks, may be brought into the lawsuits or future lawsuits. The associations are also
subject to additional litigation, including suits regarding foreign exchange fees. As a result of such litigation, the associations
are expected to continue to evolve as corporate entities, including by changing their governance structures, as previously
announced by the associations.
Given the complexity of the issues raised by these lawsuits and the uncertainty regarding: (i) the outcome of these suits,
(ii) the likelihood and amount of any possible judgments, (iii) the likelihood, amount and validity of any claim against the
associations’ member banks, including the banks and the Corporation, and (iv) changes in industry structure that may result
from the suits and (v) the effects of these suits, in turn, on competition in the industry, member banks, and interchange and
association fees, we cannot determine at this time the long-term effects of these suits on us.
We Face the Risk of Fluctuations in Our Expenses and Other Costs that May Hurt Our Financial Results
Our expenses and other costs, such as operating and marketing expenses, directly affect our earnings results. In light of the
extremely competitive environment in which we operate, and because the size and scale of many of our competitors provides
them with increased operational efficiencies, it is important that we are able to successfully manage such expenses. Many
factors can influence the amount of our expenses, as well as how quickly they may increase. For example, further increases in
postal rates or termination of our negotiated service arrangement with the United States Postal Service could raise our costs
for postal service. As our business develops, changes or expands, additional expenses can arise from management of
outsourced services, asset purchases, structural reorganization, a reevaluation of business strategies and/or expenses to
comply with new or changing laws or regulations. Other factors that can affect the amount of our expenses include legal and
administrative cases and proceedings, which can be expensive to pursue or defend.
W
e Face Risks Related to the Impact of the Gulf Coast Hurricanes That May Be Substantial and Cannot Be Predicted
Hibernia is headquartered in New Orleans, Louisiana, and maintains branches in the areas of Louisiana and Texas that
sustained significant damage from the Gulf Coast hurricanes. Hibernia’ s operations in other parts of Louisiana and Texas
ave not been impacted, either significantly or at all, by the hurricanes. h
As a result of the hurricanes, Hibernia is experiencing increased costs, including the costs of rebuilding or repairing branches
and other properties as well as repairing or replacing equipment, some of which are not covered by insurance. Hibernia has
lso announced substantial employee and recovery related costs. a
The Gulf Coast hurricanes have also affected Hibernia’ s consumer, mortgage, auto, commercial and small business loan
portfolios by damaging properties pledged as collateral and by impairing certain borrowers’ ability to repay their loans. In
addition, Hibernia may experience losses from certain customer assistance policies, such as fee waivers, adopted in the wake
of the hurricanes. The hurricanes may continue to affect Hibernia’ s loan originations and loan portfolio quality into the future
and could also adversely impact Hibernia’ s deposit base. More generally, the combined company’ s ability to compete
effectively in the branch banking business in the future, especially with financial institutions whose operations were not
concentrated in the affected area or which may have greater resources than the combined company, will depend primarily on
Hibernia’ s ability to continue normal business operations and experience growth despite the impact of the hurricanes. The
severity and duration of these effects will depend on a variety of factors that are beyond Hibernia’ s control, including the
amount and timing of government, private and philanthropic investment (including deposits) in the region, the pace of
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