Capital One Financial Corp.

The stable outlook indicates our expectation that the company's credit profile is well positioned to absorb higher credit losses, which we expect will increase as unemployment rises over time. We also expect that Capital One's diverse business model and disciplined approach to risk management, as well as still resilient U.S. consumer, will support operating performance for 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 the bank's risk-adjusted returns (perhaps as measured by the ratio of net income-to-risk weighted assets) will significantly lag peers' or if it does not continue to manage capital

...We expect Capital One Financial Corp.'s asset quality metrics to deteriorate below their pre-pandemic levels in the second half of 2023. We believe asset quality metrics would have likely bottomed out in 2022 as consumer creditworthiness reverted towards pre-pandemic norms in 2023. This remains accompanied by greater exposure to the more profitable but riskier sub-prime borrowers in the credit cards business in an effort to build earnings. As such, 30+ day delinquency rate increased to 3.36% as of June 30, 2023, by 82 basis points (bps) from June 30, 2022. Moreover, S&P Global Ratings' net charge-off rate almost doubled in the first six months of 2023 to 2.48% from 1.33% as of the end of 2022. We believe Capital One is well positioned to absorb higher than pre-pandemic credit losses amid economic uncertainty. We note that the allowance coverage ratio already meaningfully exceeds its 2019 level, and we expect credit losses will increase gradually further. This is partially because the current...

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