Capital One Financial Corp Q2 2025 Earnings Call Transcript

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

Question: Terry Ma - Barclays Services Corp - Analyst : Hey. Thank you. Good evening. Now that you've closed the acquisition, and I do appreciate the updated financial observations. But do you have any updated thoughts on economics deal that you can share, whether it's earnings power over time or some return targets that investors should be thinking about?

Question: Terry Ma - Barclays Services Corp - Analyst : Got it. And then as a follow-up, just on capital level, you mentioned you guys are doing your internal work. Any sense of the timing of when you will get that informed view and communicate that to investors? And then as I take a step back, you guys were at 14% CET1. That's meaningfully above what legacy Capital One's target was of 11% in discovers of 10% to 11%. Is there any reason why on a consolidated basis, it would be meaningfully different? Thank you.

Question: Richard Shane - JPMorgan Chase & Co - Analyst : Thanks for taking my question. Look, I'm going to break my own personal rule here. Congratulations on this completion of the acquisition. It's transformational and it's going to be very interesting to see what happens from here. Rich, you had alluded to the fact that the integration expenses are going to be above the initial $2.8 million target. Could you help us understand that more specifically? And also, could you put into context where you're seeing the opportunity for incremental investment so that, that way we can translate where -- what the opportunity would be?

Question: Sanjay Sakhrani - Keefe Bruyette & Woods Inc - Analyst : Thanks. Rich, obviously, Discover was working through a number of credit issues and not really leaning into growth like Capital One had been. I guess since credit is now somewhat under control there, do you expect to lean into growth at Discover as well inside of Prime as we look forward?

Question: Sanjay Sakhrani - Keefe Bruyette & Woods Inc - Analyst : Thank you. Just a follow-up for Andrew. Sorry to ask this question because I'm sure I can parse through all of this excellent disclosure that you provided in your comments to get to some of my conclusions. But just as we look ahead, what are some of the variables that we need to think about as a result of these purchase accounting changes? I heard you mention the NIM having a 40 basis point tailwind because of the reclass of late fees and such. But maybe, Andrew, can you just like help us think through some of the progression of the major line items as a result of this? Thanks.

Question: Ryan Nash - Goldman Sachs - Analyst : Good evening, everyone.

Question: Ryan Nash - Goldman Sachs - Analyst : So Rich, you talked about significant sustained investment, I think the phrase was used several times, talked about acceptance, marketing, the tech stack and AI. And I think you know this obviously create questions about how much all of this is going to cost. So is there anything that you can share that can give the market comfort that there isn't significant synergy reinvestment risk and that eventually, this will result in a more efficient, consolidated company over time?

Question: Ryan Nash - Goldman Sachs - Analyst : Appreciate the call. I'm going to step back and let somebody else ask a question.

Question: Erika Najarian - UBS AG - Analyst : Hi. Good afternoon. I'm going to just move off to the expense question for a second and then reask the question on capital. Fully appreciate that you're going through a review and fully appreciate the statement that you found nothing yet that's surprising as we think about the 14% versus the legacy targets of Capital One and Discover, I guess another way to ask the question is, how much time will you give yourself to optimize the capital to where you think the right level is for the company?

Question: Erika Najarian - UBS AG - Analyst : And just a quick follow-up for me. Ryan mentioned it was more to investors. And I just picked up on something that Rich said at the end of his answers to Ryan, which is that EPS power remains consistent with how you thought about it in the beginning of this journey to Discover. And I guess if I break it down, your integration expenses are coming in a little heavier than $1.8 billion. You did mention you reiterate the synergy targets, which I would for including an synergy targets. And so I guess the last piece that everyone is trying to get at is this the run rate of expense growth for lack of a better word, legacy Capital One, accelerate? And I guess based on the explanation of what you're investing in, it seems like that would have been the case. But then, Rich, through an EPS power should be consistent with what you originally thought. So again, I know we're belaboring a point where need critical for investors as we think about the pro forma EPS power of this company.

Question: Moshe Orenbuch - Cowen and Company LLC - Analyst : Great. Thanks. Rich, a couple of times, you alluded to competition in the high end of the card business. I was hoping you could give us your sense as to how that's likely to evolve this year given what you've got going on at two of the major competitors, perhaps three, if you include all of the ones that have made announcements thus far? And whether there are any elements of the transaction that will be helpful to Capital One in addressing that? And I do have a follow-up. Thanks.

Question: Moshe Orenbuch - Cowen and Company LLC - Analyst : Okay. Thanks. Maybe just as a follow-up. I think the -- one of the things that we've thought about a little bit is using the benefit of unregulated debit interchange to help build the banking franchise and to go to a rewards checking model. And you talked about the banking franchise and some of those impacts. Could you talk about how you see that in now that you've got access to this and can start migrating your debit accounts? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 22, 2025 / 9:00PM, COF.N - Q2 2025 Capital One Financial Corp Earnings Call

Question: Donald Fandetti - Wells Fargo Securities LLC - Analyst : Rich, can you share a little bit more about your international acceptance build-out plans? I'm just trying to think if there's a way you can help size it or talk about how the expenses get funded because I guess the revenue benefit of moving the bulk of the credit cards over to the network happens after you get the acceptance. And if there are any guidepost or targets that you have, that would be helpful.

Question: John Pancari - Evercore Inc - Analyst : Good evening. Just to go back to the cost topic, again, the expense topic, sorry to go back to it. But just to clarify, what type of costs are included in the upfront integration costs that you indicated are likely to come in higher? And then what types of investments are netted against the $1.5 billion in cost saves that you set out? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 22, 2025 / 9:00PM, COF.N - Q2 2025 Capital One Financial Corp Earnings Call

Question: John Pancari - Evercore Inc - Analyst : Yeah. I was just trying to determine the difference between the type of costs that are included in the upfront integration costs that are coming in higher versus the type of investments, like the investments in the network, any investments in regulatory areas that are -- that may be netted against the net cost saves that you set out?

Question: John Pancari - Evercore Inc - Analyst : Right. So those investments, those ongoing investments that you mentioned being that they are netted against the cost saves and that you feel good about or that had indicated in your prepared remarks that you are on track to achieve the expected $2.5 billion synergies. So is it fair to assume that there's no implied expected change in those investments that are within that $2.5 billion?

Question: John Pancari - Evercore Inc - Analyst : Okay. All right. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JULY 22, 2025 / 9:00PM, COF.N - Q2 2025 Capital One Financial Corp Earnings Call

Question: Jeffrey Adelson - Morgan Stanley - Analyst : Hey. Good evening. Thanks for taking my question. Most of my questions have been asked and answered. But just on the debit conversion, I know you characterized this as something that can happen relatively quickly. Can you just give us an update on where you are in that process, how quickly you'll be able to pull that off, achieve the full get an interchange benefit on a run rate basis? And maybe what are some of the steps you need to take from here to go through with that and complete the conversion? And as a part of that question, have you had any discussions with some of the largest merchants where your legacy Capital One debit customers are shopping today -- are those merchants on board with some of the changes that are coming forth. And -- or are there any negotiation that needs to happen?

Question: Brian Foran - Truist Securities - Analyst : Hi. I know you haven't been big users of guidance historically, but there have been times where you set out these guideposts, whether it's the OpEx efficiency target. I think that was threading the theme at one point. loss guidance, EPS guidance, those things when you're helping investors navigate periods of transition or trying to understand an issue. I know you're deferring to give specific guidance right now, but is that something you're contemplating? I mean it is hard to look at the numbers for 2Q with the mid-quarter close and all the adjustments and really get comfortable or confidence of what the core is going to look like over the next couple of quarters? Is it -- is there a thought of giving guidance on some high-level metrics or targets on returns or something like that? Or is it going to be a little bit more of a chips fall where they may philosophy?

Question: John Hecht - Jefferies LLC - Analyst : Afternoon. Thanks for putting me in and thank you for all the information on the Discover -- the update on the Discover journey. I guess my question is going back to some of the traditional questions we'd asked you, Rich, is -- what's your -- I guess, a 2-part question I have is what's your opinion on the state of affairs of the US consumer? Has that changed in the last quarter? And have you noticed anything different between your customer set and the Discover customer set in terms of payment behaviors or spend behaviors?