Capital One Financial Corp.

The stable outlook reflects our view that Capital One is well positioned to absorb any remaining fallout from the pandemic, including higher credit losses, which we expect will rise into at least 2022. We also expect that Capital One's diverse business model and disciplined approach to risk management, as well as improving economic conditions in the U.S., will generate better operating performance over the next two years. We could lower the ratings if Capital One's asset quality deteriorates substantially more than we currently anticipate or if its risk appetite increases. We could also lower the ratings if we think Capital One's risk-adjusted returns will significantly lag peers' or if it does not continue to conservatively manage capital and liquidity. We

...Stronger consumer balance sheets have aided Capital One Financial Corp.'s excellent recent financial results. Consumer creditworthiness has held up better than we initially expected in the past year, largely because of stimulus measures implemented by the U.S. government. Capital One's operating performance and balance-sheet strength have also benefited from prudent management of credit and liquidity, as well as temporary regulatory restrictions on shareholder payouts (which have been lifted). Although asset quality remains excellent, we believe losses will increase as the positive impact of income support mechanisms declines and commercial criticized loans remain relatively high. Capital One is well positioned to absorb higher credit losses. As of June 30, 2021, the bank's reserve for credit losses was about 4.95% of consolidated loans held for investment. (Coverage of domestic cards was higher at 8.9%; for branded cards only, it was 10.1%.) We expect reserve levels will gradually decline...

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