Capital One Financial Corp Q1 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Ryan Nash - Goldman Sachs - Analyst : So Rich, obviously, a lot of concerns in the market regarding tariffs and the state of the consumer. It's hard to see those concerns in the results, given better-than-expected credit in the reserve release. So maybe just talk a little bit about what you are seeing in the data within Capital One, what gave you the confidence to release reserves. And then for Andrew, you mentioned some of the drivers, favorable credit, higher allocation to the downside. Maybe just remind us what's included for the -- within the allowance for both unemployment and the overall economy?

Question: Sanjay Sakhrani - Keefe Bruyette & Woods Inc - Analyst : Rich, Andrew. Rich, you mentioned you're fully mobilized to integrate. I'm just curious how we should think about the timing in terms of some of the milestones to achieve the synergies. For example, how long would it take for the debit conversion to happen and maybe a similar point on expenses?

Question: Sanjay Sakhrani - Keefe Bruyette & Woods Inc - Analyst : Okay. Great. And then maybe a follow-up on capital return. Obviously, you guys are well above the CET1 target, I think, Discover as well. you've talked about sort of a phased migration back towards your target. Could you just discuss how we should think about it going forward in terms of when you might be able to start sort of elevating the amount of capital return?

Question: Terry Ma - Barclays Bank - Analyst : So you called out marketing was up 19% year-over-year. It seems like you're still seeing some compelling opportunities and are leaning in. So maybe talk about where you're seeing the best opportunities right now? And then also, how are you thinking about balancing that investment for growth versus risk management, particularly in subprime? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 22, 2025 / 9:00PM, COF.N - Q1 2025 Capital One Financial Corp Earnings Call

Question: Moshe Orenbuch - TD Cowen - Analyst : Great. You just in the last answer mentioned that the Discovery transaction is going to kind of help advance kind of the national banking franchise. Hoping maybe you could kind of drill into that is when you think about the elements that either Discover brings or things you'd like to add to your national banking products? I mean, is rewards checking among them? Like what are the things that you think Capital One needs to do better to enhance that as you think about it going forward?

Question: Moshe Orenbuch - TD Cowen - Analyst : Got it. Maybe just keeping on the theme with Discover, recognizing that obviously, you don't run the company yet and haven't been inside. But just from what you know about the card business and its focus and what it's done and the fact that it's probably been less aggressively managed over the last somewhere between a year and two years, depending on when you start that. What do you think are the things that need to be done? And does that portfolio shrink before it grows? Any thoughts as to the Discover market and how to think about what you'd like to do with it?

Question: Richard Shane - JPMorgan Securities LLC - Analyst : Hey guys. Thanks for taking my question, this afternoon look, I think one thing that is pretty clear over the last few years, there's been a significant divergence in technology investment between Capital One and Discover. Obviously, we're very interested in the synergies. I'm curious, as you've gone through your due diligence process, how the technology stacks compare for each company? Is this going to be an easy transition to get the Discover systems onto the Capital One system? Or is it going to be sort of the equivalent of you're looking for folks who can code Cobalt or something antiquated because of the more limited investment? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 22, 2025 / 9:00PM, COF.N - Q1 2025 Capital One Financial Corp Earnings Call

Question: Richard Shane - JPMorgan Securities LLC - Analyst : Got it. But it sounds like you will be on their tech stack for a couple of years and in their data center still?

Question: John Pancari - Evercore ISI - Analyst : Good evening. I appreciate that you cited no change to the Discover synergies or integration. I also know you indicated you don't own the company yet. So it's tough to completely look under the hood. Is there anything about the backdrop today, the regulatory developments, the competitive backdrop or anything that you see today that you think could lead to a revision to those synergies once you close the deal in May? And then separately, you didn't mention 15% EPS accretion or to 14% CET1 on close. Just wondering if there's any change there. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 22, 2025 / 9:00PM, COF.N - Q1 2025 Capital One Financial Corp Earnings Call

Question: Mihir Bhatia - BofA Securities Inc - Analyst : Just wanted to talk a little bit about just the uncertain macro. Maybe, Rich, it's been a while since we've had what you would call maybe a normal recession. Obviously, we had COVID a few years back. But I was just wondering if you could talk a little bit about just the recession resiliency at Capital One, maybe some of the factors or some of the levers that you can pull if you start seeing the macro deteriorate? And just how is it different now than the last time between 10, 15 years since we had one. So just how is Capital One different between the mix changing as you leaned into higher spending improvements in technology. Just how is Capital One different from a recession resilience point of view?

Question: Donald Fandetti - Wells Fargo Securities LLC - Analyst : Rich, I was wondering if you could talk a little bit about the auto lending business. in terms of how you're thinking about loan growth. You've got a lot of different dynamics like tariffs going on. Are you still leaning in? And do you think that there will be the demand to support that growth?

Question: Donald Fandetti - Wells Fargo Securities LLC - Analyst : Thank you.

Question: Bill Carcache - Wolfe Research Securities - Analyst : Good evening, Rich and Andrew. Following up on your expense commentary and the choices you're making. Do you think, Rich, may be necessary to adjust your investment priorities as you continue to build out your various businesses while now also allocating capital to the build-out of the network business. And if you could speak more broadly to how focused you are on managing expenses for the revenue environment and generating positive operating leverage along the way as you make these investments?

Question: John Hecht - Jefferies LLC - Analyst : I guess my question is around marketing synergies. On one hand, it seems that the amount of media advertising maybe the physical mailings to the commerce, I mean one plus one is not going to equal two, I think, with those endeavors. On the other hand, Rich, I think you're interested in really focusing on continued brand development, particularly on the global network. So how do we think about the kind of puts and takes of the opportunities for synergies versus the desire to spend and invest in the brand.

Question: John Hecht - Jefferies LLC - Analyst : Correct.

Question: Erika Najarian - UBS - Analyst : Yes, good evening. Just two quick follow-up questions. First is for you, Andrew. I'm just going all the way back to Ryan's question on ACL. Is there any way to have a neat answer on what the weighted average unemployment rate would be if we took into account the heavier weighting on the downside scenario. And as we look forward for Capital One stand-alone. Should we think about the ACL ratio given improved credit performance relative to the heightened macro uncertainty? And I did have a follow-up.

Question: Erika Najarian - UBS - Analyst : Got it. And just my follow-up question. implicit in your response to John Pancari's question, are you also affirming the purchase accounting assumptions from February of 2024? And just confirming that there any adjustments to be made given the heightened uncertainty to the Discover portfolio in terms of credit going forward, it would be on the day two provision, of course, not the purchase credit impaired mark.

Question: Brian Foran - Truist Securities - Analyst : Hey. I had one on spend and one on the network. On spend, in prior quarters, you've given us the high end versus low end kind of updating commentary. I just wonder if you could give us that and maybe specifically on the tariff reaction, any differences you're observing in high end versus low end? Or is it about the same?

Question: Brian Foran - Truist Securities - Analyst : And then on the network, and I apologize, I feel like I'm going to oversimplify this and ask this in a dumb way, but when I talk to people, I mean, I think everyone sees the value of a globally competitive network. We can just look at the multiples Visa Mastercard at. It also seems like a very long and expensive journey. I'm just trying to unpack what you're signaling. Is it incrementally each year investing in the network? Or is it like, and again, I know I'm simplifying this, I'm not trying to put words in your mouth, but like is there some signaling that like, hey, guys, we might reset the expense outlook to take on Visa Mastercard full stop?

Question: Robert Wildhack - Autonomous Research LLP - Analyst : Hey guys. Rich, you've hit on the international acceptance them quite a bit this evening and there internationally, it seems like that's more of a chicken and egg problem where you have to kind of build and catalyze acceptance. I'm wondering if you could share your thoughts on the specific investments strategies or levers you might have to solve that chicken and egg problem internationally and ultimately close the acceptance gap. Thanks.

Question: Robert Wildhack - Autonomous Research LLP - Analyst : Thanks.