An economy that is "more or less moving sideways" isn't hurting or helping Capital One Financial Corp.'s ongoing credit woes, according to CFO R. Scott Blackley.
"I don't think it's gotten particularly worse, but it also hasn't gotten particularly better," Blackley said at a May 30 Deutsche Bank Global Financial Services Conference. "And the economic factors as we look at them continue to move in a way that aren't disrupting credit performance. … So then we look at the supply dynamics and what's going on with supply."
During the company's first-quarter 2017 earnings call, executives said they expect a spike in full-year charge-offs in Capital One's domestic card portfolio, predicting the rate to be between the high 4% range to around 5% — up from previous expectations of a mid-4% range.
"When we see subprime card growth that I think was at around 14% year over year, that's a pretty significant amount of growth," Blackley said at the conference. "That tells you that there is a lot of attention and a lot of supply coming into the market."
The company has been adjusting its risk management and "trimming around the edges" of its underwriting practices to adjust to a more competitive market, Blackley said.
"And I think that overall, I would expect that we will continue to be cautious in terms of our underwriting practices in an environment where you've got a bunch of competitive supply," Blackley said. "I don't think that competitive intensity is something that we would expect to abate."
Speaking at the conference, Blackley said there is an uptick in consumers who are "more indebted," pointing to student and auto loans, and revolving credit that has "really been expanding."
At a June 2016 conference, Chairman, President and CEO Richard Fairbank had called auto lending a "very attractive business," though he noted Capital One had flagged underwriting practices with which it was uncomfortable. This year, Blackley's tone was more measured.
"We've been expecting and modeling that those used-car prices have got to come down — and they are coming down — but in the first quarter, we saw them come down actually a little more than what our models had projected," Blackley said.
Still, he said the company thinks it will be able to book some "very resilient and profitable business," though it will have less opportunity to continue growing in ways that are "as resilient as we like them to be."
Blackley said the company is experiencing a "fundamental shift" in the way management thinks about the company and the investments it is making in digital and technology
Going forward, Blackley said the company sees revenue opportunities, particularly around its deposit pricing.
"We think that there may be some opportunities to hold deposit pricing flat as rates are moving up, and that basically, we'll be able to keep rates slightly lower than what our models have projected in our betas," Blackley said.
Blackley declined to comment on specifics of the company's Synovus Financial Corp. transaction during the conference, noting that "it's just not going to be a material event for us in terms of the total returns of that business to Capital One." Blackley reiterated that the deal isn't currently included in the company's guidance, since it is still pending regulatory approval. Under the deal, Synovus would sell $5.2 billion in credit card assets and related liabilities from Cabela's World's Foremost Bank to Capital One.