Capital One 2007 Annual Report Download - page 9
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We also have the flexibility to tap into our deep liquidity (over $29 billion as of
December 31, 2007), which we believe is highly accessible even during challenging
times. Our liquidity portfolio contains virtually no subprime and has no CDO or SIV
exposure. In fact, our liquidity portfolio increased in value by about $300 million
during the second half of 2007. We also retain a relatively matched book of assets
and liabilities, and continue to have a low tolerance for taking interest rate risk.
Of course, while we are conservative and prudent, Capital One is still subject to cyclical
forces. That is why resiliency always has been an imperative for us. Our resiliency will
continue to pay off in the event of persistent economic pressures in 2008. We regularly
subject our businesses to recession scenarios. Even assuming significant economic
worsening, our company would remain well-capitalized, maintain ample liquidity, and
be able to pay dividends despite lower levels of profitability.
Consumer Lending Delivered Profitable Growth
Our portfolio of consumer lending businesses collectively continued to deliver prudent
growth and strong profitability.
U.S. Card
Our U.S. Card business had a strong year in 2007, led by solid revenue and profit
growth, great execution on infrastructure initiatives, and a continued commitment to
delivering great value and convenience to our customers. However, even if U.S. Card
did not grow revenues by a penny, the value creation of the business would still be
extraordinary due to its tremendous capital generation. U.S. Card generated $2 billion
of capital in 2007.
The credit card industry is consolidated, with the top six players having about 80 percent
of the market. Along with consolidation, the growth rate of the industry has naturally
slowed. Despite an intensely competitive environment, our U.S. Card business continued
to deliver exceptional results. While most of our credit card competitors saw profits
shrink in 2007, our U.S. Card business delivered net income of $2.1 billion in 2007,
up 16 percent from the prior year. Top line revenue also improved to $8.9 billion, up
11 percent over 2006. Returns on allocated capital in 2007 continued to be healthy, in
excess of 50 percent for the year. The earnings power of our credit card business was
particularly impressive given the infrastructure investments we made during the year.
In addition, we improved the resiliency of the business by making selected pricing
changes, such as repricing certain assets where the matched funding had expired after
many years following the conversion to our new credit card operating system. These
“Despite an
intensely
competitive
environment,
our U.S. Card
business
continued
to deliver
exceptional
results.”
7