Capital One 2007 Annual Report Download - page 5

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they represent a greater proportion of our company, delivering approximately 90 percent
of our earnings, than they do at any other large bank. While these businesses may grow
modestly given their scale and the consolidation in their respective markets, they will
continue to generate considerable shareholder value through a mix of moderate growth
and exceptional capital generation.
The remainder of Capital One is made up of our portfolio of diversified businesses,
which are classic information-based businesses in various stages of national consolidation.
These businesses are well-positioned to deliver strong growth over time as they ride the
consolidation wave, subject to appropriate prudence in the current economic cycle. We
are building scale positions in these businesses and, when the consolidation stops, they
should be positioned to continue to generate above hurdle returns and excess capital.
We have sufficient scale at the right level in each of our national and local businesses
today to compete effectively with the biggest players in financial services. With our
current scale, we have both upside opportunities for organic growth and the ability to
reap the operating efficiencies that are a byproduct of a scale business. We not only
have the relevant scale to compete against the top handful of national banks, we have
a considerable scale advantage on the other thousands of banks in the United States.
Our scale position enables us to drive down costs and create operating leverage. In
2007, we launched a comprehensive cost management initiative designed to take $700
million out of our 2009 running rate of operating costs. As a result of this effort, we
expect our absolute level of 2008 operating expenses to be at least $200 million lower
than in 2007. And we continue to target an efficiency ratio in the mid-40s in 2008.
Driving efficiency is not a one-time initiative. Disciplined cost management is an ongoing
part of how we create shareholder value. We will continue to focus on excellence in
costs and process re-engineering to further improve speed to market, innovation, and
operating leverage in the years to come.
We Are Deploying Capital To Deliver Shareholder Returns
We are driving shareholder value through the disciplined management of our balance
sheet. Capital One’s diversification on both sides of the balance sheet, and the resulting
change in our risk profile, decreases our capital requirements significantly and creates
substantial capital efficiency benefits. A combination of our high returns on tangible
equity, capital efficiency, and slower growth is driving significant capital generation.
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