Capital One 2012 Annual Report Download - page 50

leaders in support of our long-term strategy. These laws and regulations may not apply in the same manner to all
financial institutions, and we therefore may face more restrictions than other institutions and companies with
whom we compete for talent. If we are unable to retain talented senior leadership, our business could be
negatively affected.
Our Businesses are Subject to the Risk of Increased Litigation.
Our businesses are subject to increased litigation risks as a result of a number of factors and from various
sources, including the highly regulated nature of the financial services industry, the focus of state and federal
prosecutors on banks and the financial services industry, the structure of the credit card industry and business
practices in the mortgage lending business. Substantial legal liability against us could have a material adverse
effect or cause significant reputational harm to us, which could seriously harm our business. For a description of
the litigation risks that we face, see “Note 21—Commitments, Contingencies and Guarantees.”
We Face Risks from Unpredictable Catastrophic Events.
Despite our substantial business contingency plans, the impact from natural disasters and other catastrophic
events, including terrorist attacks, may have a negative effect on our business and infrastructure, including our
information technology systems. In addition, if a natural disaster or other catastrophic event occurs in certain
regions where our business and customers are concentrated, such as the New York metropolitan area, we could
be disproportionately impacted as compared to our competitors. The impact of such events and other catastrophes
on the overall economy may also adversely affect our financial condition and results of operations.
We Face Risks from the Use of or Changes to Estimates in Our Financial Statements.
Pursuant to generally accepted accounting principles in the U.S. (“U.S. GAAP”), we are required to use certain
assumptions and estimates in preparing our financial statements, including, but not limited to, estimating our
allowance for loan and lease losses and the fair value of certain assets and liabilities. In addition, the Financial
Accounting Standards Board (“FASB”), the SEC and other regulatory bodies may change the financial
accounting and reporting standards, including those related to assumptions and estimates we use to prepare our
financial statements, in ways that we cannot predict and that could impact our financial statements. If the
assumptions or estimates underlying our financial statements are incorrect or if financial accounting and
reporting standards are changed, we may experience unexpected material losses. For a discussion of our use of
estimates in the preparation of our consolidated financial statements, see “Note 1—Summary of Significant
Accounting Policies.”
Our Ability To Receive Dividends From Our Subsidiaries Could Affect Our Liquidity And Ability To Pay
Dividends.
We are a separate and distinct legal entity from our subsidiaries. Dividends to us from our direct and indirect
subsidiaries, including our bank subsidiaries, have represented a major source of funds for us to pay dividends on
our common stock, make payments on corporate debt securities and meet other obligations. There are various
federal law limitations on the extent to which the Banks can finance or otherwise supply funds to us through
dividends and loans. These limitations include minimum regulatory capital requirements, federal banking law
requirements concerning the payment of dividends out of net profits or surplus, Sections 23A and 23B of the
Federal Reserve Act and Regulation W governing transactions between an insured depository institution and its
affiliates, as well as general federal regulatory oversight to prevent unsafe or unsound practices. If our
subsidiaries’ earnings are not sufficient to make dividend payments to us while maintaining adequate capital
levels, our liquidity may be affected and we may not be able to make dividend payments to our common
stockholders, to make payments on outstanding corporate debt securities or meet other obligations, each and any
of which could have a material adverse impact on our results of operations, financial position or perception of
financial health.
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