Capital One Deserves More Respect
We see an opportunity to invest in the exceedingly cheap shares.
We believe Capital One (COF) is one of the best-run banks and does not receive the respect it deserves. Under founder Richard Fairbank’s leadership, the bank has grown from offering only credit cards into a diversified lender specializing in three businesses: credit cards (42% of loans), consumer lending (31% of loans), and commercial banking (28% of loans). Although credit cards are not as important as before, this segment still accounts for approximately 59% of income.
While much of its success can be attributed to an unrelenting focus on technology, operations, and organic growth, Capital One has periodically created significant value by acquiring businesses opportunistically and, most important, at attractive prices. We believe the acquisitions of HSBC’s cobranded card business and ING Direct exemplify the company’s aim to acquire good strategic assets cheaply. Some of the company’s acquisitions before 2008 were mistakes, in our view. But overall, using its patient acquisition philosophy, Capital One has become a stronger, diversified consumer lender.
Colin Plunkett does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.