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Capital One Financial Corp. (NYSE:COF) is feeling the squeeze of the increasing unemployment rate. An unemployment rate rising to 9.5 percent with no cessation in view, The Company reported second quarter losses of nearly 5 percent according to some financial reports, a loss in excess of $275 million revenue dollars.
Customers, not capable of finding work, are using their credit cards for everyday household expenses including buying food. This often produces reaching the credit limit on their cards and then the incapability of making their credit card payments. Defaulted credit card figures rose in accordance to the recession and have reached an all time high of 10.76 percent in June. Unrecoverable write-offs also rose 2.5 percent for credit card companies on the whole. Capitol One Financial Corp. wrote off over 9 percent of unrecoverable loans in June.
Richard D. Fairbank, Chairman and Chief Executive Officer of Capital One Financial Corporation recently said, “I guess a quarter or two ago we got out of the business of giving forward guidance on dollar losses just because of all the uncertainty that is out there. That said the dollar losses have actually been coming in pretty consistent with our expectations. Basically what’s happening, with respect to our view of future credit losses, the economy is in many ways worsened a little more than our expectations and our own credit performance has actually come in a little bit better than expectation. So in some ways they are offsetting so our view of dollar losses has been pretty steady over time. The big thing we want to stress is that when you’re looking at loss rates which is what most of the cross calibration among players has in it that I think for a lot of players and even more so for Capital One the denominator effect is going to become actually possibly the most significant impact even in an environment where we still see credit worsening gradually over time.”
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