FINANCIALS: Capital One Results: Bond Market Very Relaxed

Capital One (COF : Baa1 rev. down/BBB/A-) results are due this evening; indications from the large banks have been mixed but its recent tightening performance implies the bond market is taking a very sanguine view on US asset quality.

• Last results (25 Apr) saw the equity marginally weaker on the day but were broadly in line with expectations and something more of a “soft landing” story was being sold by mgmt.
• Results from the large card-issuing banks have been mixed this results season with, for example, JPM indicating card reserving would be a little weaker than expected. These were, however, contradicted by BoA.
• COF’s single €IG bond has tightened since last results (25bp vs. €IG banks -3bp) but its USD bonds are 2bp tighter over the last month, significantly better than US financials more widely (+19bp) – so its outperformance is across the stack.
• Revenues have been upgraded marginally since results (+0.8% and +3%) but EPS is lower (1.4% and 5%), implying expectations of rising loan losses are already pretty well captured right now, we feel.

Results are due 2105 (London time) with conf call at 2200 at https://edge.media-server.com/mmc/p/w6rdjmwm/