Fitch Removes Capital One From Rating Watch Negative & Affirms All Ratings; Outlook Stable

Fitch Ratings has removed Capital One Financial Corporation's (COF) and its primary operating subsidiaries from Rating Watch Negative and has affirmed all ratings for COF. The rating actions follow the close of the company's acquisition of HSBC's domestic credit card business. The Rating Outlook is Stable. A complete list of ratings is detailed at the end of this release.

On May 1, 2012 COF completed the previously announced acquisition of HSBC's domestic credit card business, which included $28.2 billion of credit card receivables and $0.6 billion of other net assets for aggregate consideration of $31.3 billion in cash. Fitch notes that the purchase price included a $2.5 billion premium on the credit card receivables acquired, which it views as reasonable.

Fitch notes that this acquisition was in part supported by COF's prior acquisition of ING Direct, which added nearly $80 billion of deposits to COF's balance sheet, which Fitch notes will help the company to fund the acquired credit card receivables and planned growth in receivables.

In addition, in late 1Q12 COF had successfully raised $1.25 billion of common equity as well as $1.25 billion of senior unsecured debt at the holding company to further support the acquisition. COF anticipates that the company's Tier 1 common equity ratio will decline to the high 9% range in the wake of this deal closing, down from 11.9% at March 31, 2012.

While COF's capitalization is slightly on the lower side relative to its rating category, Fitch believes COF's capital ratios will improve throughout the remainder of the year, and this viewpoint supports Fitch's affirmation of all of COF's ratings. Fitch anticipates COF will continue to grow earnings and therefore accrete capital at a strong rate over the next few quarters.

Fitch notes that while the ING Direct acquisition created some net interest margin (NIM) compression due to the addition of ING's lower yielding mortgage loans on the balance sheet, the planned run-off of these assets combined with the addition of the higher yielding credit card receivables should allow the company's NIM to expand throughout the remainder of 2012, which should further help drive earnings growth.

Fitch's rating affirmation and Stable Outlook for COF are further supported by the company's continued strong credit quality metrics. Overall net charge-offs (NCOs) declined to a potentially cyclically low 2.04% in 1Q12, down from 2.69% at 4Q'11. Additionally, the 30+ day delinquency rates in both the card and consumer banking segments declined from the sequential quarter.

The one weaker spot of COF's credit quality continues to be commercial real estate loans, which Fitch expects to remain lumpy, though manageable, in terms of non-accrual loans over the near to medium term.

Fitch notes that COF's credit quality, particularly in credit cards is nearing a potential cyclical low. However, Fitch would expect the NCO rate to modestly increase over the medium term, as COF's newer receivables season and the company expands further into the private label space, which generally has higher NCO rates, that was brought on board with the HSBC deal. This expectation is encompassed by COF's current ratings, and supported by Fitch's Stable Outlook.

Potential adverse scenarios to COF's ratings include some continued integration risk with COF digesting both ING Direct and the HSBC domestic card business, now simultaneously. Given this, there is not much upside to ratings or the Rating Outlook over the near to medium term.

Additionally, should COF pursue another acquisition of reasonable size (a deal greater than $10 billion), over the near-term, there could be some pressure on the ratings or Outlook. Any other large capital distributions in 2013 that negatively impact both Tier 1 common and tangible common equity ratios or an unexpected and significant rise in troubled assets could also adversely impact ratings.

COF is a financial holding company headquartered in McLean, VA. The company offers a diverse set of financial products with nearly $300 billion of assets as of March 31, 2012.

Fitch has removed from Rating Watch Negative and subsequently affirmed the following ratings with a Stable Outlook:

Capital One Financial Corp.

--Long-term Issuer Default Rating (IDR) at 'A-';

--Short-term IDR at 'F1';

--Viability rating at 'a-';

--Senior shelf and unsecured debt at 'A-';

--Subordinated debt at 'BBB+';

--Support at '5';

--Support floor at 'NF'.

Capital One Bank (USA) National Association

--Long-term IDR at 'A-';

--Short-term IDR at 'F1';

--Viability rating at 'a-';

--Senior debt at 'A-';

--Long-term deposits at 'A';

--Short-term deposits at 'F1';

--Subordinated debt at 'BBB+';

--Support at '5';

--Support floor at 'NF'.

Capital One National Association

--Long-term IDR at 'A-';

--Short-term IDR at 'F1';

--Viability rating at 'a-';

--Senior debt at 'A-';

--Long-term deposits at 'A';

--Short-term deposits and short-term debt at 'F1';

--Support at '5';

--Support floor at 'NF'.

Chevy Chase Bank, F.S.B.

--Long-term deposits at 'A'.

Capital One Capital II, III, IV, V, and VI

--Trust Preferred at 'BB+'.

Hibernia Corporation

--Subordinated debt at 'BBB+'.

North Fork Bancorporation, Inc.

--Subordinated debt at 'BBB+'.

North Fork Capital Trust II

--Trust preferred at 'BB+'.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Global Financial Institutions Criteria', dated Aug. 16, 2011;

--'Bank Holding Companies', dated Aug. 16, 2011;

--'Rating Bank Regulatory Capital and Similar Securities', dated Dec. 15, 2011.

Applicable Criteria and Related Research:

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=649171

Bank Holding Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648612

Rating Bank Regulatory Capital and Similar Securities

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=656371

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

Contacts:

Fitch Ratings
Brian Bertsch, [phone]
Media Relations, New York
[e-mail]
or
Primary Analyst:
Justin Fuller, CFA, [phone]
Director
Fitch, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst:
Meghan Neenan, CFA, [phone]
Senior Director
or
Committee Chairperson:
Christopher Wolfe, [phone]
Managing Director