Capital One 2006 Annual Report Download - page 6

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4
U.S. Card delivered net income of $1.8 billion in 2006, up 13% from the prior year. Stellar
credit performance continued to be a key driver of U.S. Card results. Managed charge-offs
were 3.37% for the year, the lowest level since 1995. We also continued to generate
strong loan growth, ending 2006 with managed loans of $53.6 billion, up 8.4% from the
end of 2005.
In 2006, our big push in U.S. Card was our focus on transactor customers who use their
cards mostly as a payment vehicle. We believe that transactor products, such as rewards
cards, enhance our brand and build profitable and enduring customer relationships for the
long term. We continue to offer our flexible No Hassle Miles®airline rewards card which
allows our customers to fly any airline, any time, with no blackout dates. Unlike many
competitors, our rewards don’t expire and there is no limit on the rewards that can be
earned. These programs are driving strong growth. Total purchase volume in U.S. Card
was up 13% in 2006.
We chose to stay on the sidelines in the prime revolver segment for much of 2005 and 2006.
This segment is dominated by our competitors’ offers featuring introductory rates as low
as 0% for as long as 18 months. Webelieve that these products are heavily dependent on
penalty repricing for profitability, and ultimately sacrifice customer loyalty and long-term
returns for the sake of short-term growth. These types of products are inconsistent with
the customer franchise that we’re building. We recently introduced new products in the
prime segment that are not dependent on aggressive penalty repricing to achieve profitability.
These new prime products are generating profitable growth and stickier customer relationships
in our U.S. Card business.
Arobust infrastructure is essential to innovation. In 2006, we successfully re-tooled our
U.S. Card infrastructure under the leadership of Rob Alexander, concluding a three year
effort to convert our card billing system to the Total Systems billing platform. The conversion
was the biggest infrastructure initiative ever undertaken by the company. Our new card
platform will fuel innovation by enabling us to create more customized offers while
dramatically improving our speed to market.
U.S. Card will continue to face significant challenges. Credit losses have been at historically
low levels, and we expect losses to return to more normal levels going forward. In addition,
the credit card industry in the United States remains intensely competitive. Day in and day
out, we compete against some of the biggest financial institutions in the world in a highly
consolidated industry. However, we believe that we’re well-positioned to meet these
challenges head on and to continue building a resilient and profitable U.S. Card business.
Global Financial Services
Global Financial Services, or GFS, is our portfolio of emerging national scale growth businesses,
including small business lending, home loans, installment lending and healthcare finance,
along with our international businesses in Canada and the UK.