Capital One reported earnings and the markets are cheering.
music selection: “Sign of the Gypsy Queen” — April Wine
I hold 61 shares short of COF in my main investment account. The basis is a little over 5,000 dollars. Yesterday after close, Capital One reported quarterly earnings and surprised to the upside. Shares are up over 8% on the day. I am now 328 dollars to the red. I will continue to hold the short until 102.70 (a 25% hard stop). I think I am still right about deteriorating credit quality in the auto loan and credit card loan books and that I am just “early” to the party.
Zacks had this to say: “increasing expenses continue to hurt Capital One’s profitability. Also, deteriorating credit quality remains a major near-term concern. In fact, asset quality is likely to continue to remain under pressure due to losses in the auto portfolio and U.S. card business.” It should be noted that COF actually increased its provision for loan losses in response to growing default rates. Net charge offs have increased 66 basis points year over year. All this while deposits held at the bank fell 1%. If this trend continues, Capital One could face a liquidity crisis that will reward shorts well.
Devour your prey raptors!