Capital One 2008 Annual Report Download - page 37

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This section highlights specific risks that could affect our business. Although we have tried to discuss all material risks, please be
aware that other risks may prove to be important in the future. In addition to the factors discussed elsewhere in this report, among the
other factors that could cause actual results to differ materially from our forward looking statements are the following:
The Current Business Environment, Including the Current Economic Downturn, May Adversely Affect Our Industry,
Business, Results Of Operations And Capital Levels
The current global recession has resulted in a general tightening in the credit markets, lower levels of liquidity, reduced asset values
(including residential and commercial properties), reduced business profits, increased rates of business and consumer delinquency, and
increased rates of consumer bankruptcy, some of which have had a negative impact on our results of operation. Continued economic
weakness may hurt our financial performance as customers default on their loans or maintain lower deposit levels, or in the case of
credit card accounts, carry lower balances and reduce credit card purchase activity. A prolonged global recession could have a
material adverse effect on our financial condition and results of operations.
Furthermore, dramatic declines in the housing market over the past year, with falling home prices and increasing foreclosures and
unemployment, have resulted in significant write-downs of asset values by financial institutions, including government-sponsored
entities as well as major commercial and investment banks. These write-downs, initially of mortgage-backed securities but spreading
to credit default swaps and other derivative securities, in turn, have caused many financial institutions to turn to the government for
extraordinary financial assistance, to seek additional capital, to merge with larger and stronger institutions and, in some cases, to fail.
Reflecting concern about the stability of the financial markets generally and the strength of credit counterparties, many lenders and
institutional investors have reduced or eliminated their funding to even the most credit-worthy borrowers or to other financial
institutions. The resulting lack of available credit and lack of confidence in the financial markets could materially and adversely affect
our access to capital and financial condition.
In particular, we may face the following risks in connection with these events:
 Market developments may affect consumer confidence levels and may cause declines in credit card usage and adverse
changes in payment patterns, causing increases in delinquencies and default rates, which could have a negative impact on
our results of operations.
 The processes we use to estimate inherent losses may no longer be reliable because they rely on complex judgments,
including forecasts of economic conditions, which may no longer be capable of accurate estimation, which could have a
negative impact on our business.
 Our ability to assess the creditworthiness of our customers may be impaired if the criteria and/or models we use to
underwrite and manage our customers become less predictive of future losses, which could cause our losses to rise and
have a negative impact on our results of operations.
 Our ability to borrow from other financial institutions or to engage in securitization or unsecured funding transactions on
favorable terms or at all could be adversely affected by further disruptions in the capital markets or other events, including
actions by rating agencies and deteriorating investor expectations, which could limit our access to funding. As a result of
these current market conditions, we have increased our reliance on deposit funding. This shift results in higher levels of
owned loan receivables and related increases in our allowance for loan and lease losses.
 Increased charge-offs, rising LIBOR and other events may cause our securitization transactions to amortize earlier than
scheduled or increase certain capital requirements, which could accelerate our need for additional funding or have a
significant effect on the ability of certain of our business entities to meet capital adequacy requirements.
 An inability to accept or maintain deposits or to obtain other sources of funding could materially effect our liquidity
position and our ability to fund our business. Many other financial institutions are increasing their reliance on deposit
funding, including newly formed bank holding companies and, as such, we expect increased competition in the deposit
markets. We cannot predict how this increased competition will affect our costs. If we are required to offer higher interest
rates to attract or maintain deposits, our funding costs will be adversely impacted. In addition, our ability to maintain
existing or obtain additional deposits may be impacted by factors beyond our control, including perceptions about our
financial strength, which could lead to consumers choosing not to make deposits with us.
 Regulators, rating agencies or investors could change their standards regarding appropriate capital levels for banks in
general or our company in particular. If we are unable to meet any such new standards, it could have negative impacts on
our ability to lend, to grow deposits, and on our business results.
 Increased prepayments, refinancings or other factors could lead to a reduction in the value of our mortgage servicing
rights, which could have a negative impact on our financial results.