New York, May 27, 2021 -- Moody's Investors Service (Moody's) has affirmed the ratings of Capital
One Financial Corporation (CapOne) and its bank subsidiaries, Capital
One, N.A. and Capital One Bank (USA), N.A.,
following the affirmation of the a3 standalone baseline credit assessments
(BCA) of the bank subsidiaries. CapOne's senior long-term
unsecured debt is rated Baa1 and the bank subsidiaries have long-term
senior unsecured debt ratings of Baa1 and long-term deposit ratings
of A1. The A2(cr)/Prime-1(cr) Counterparty Risk Assessments
and the A3/Prime-2 Counterparty Risk Ratings of the bank subsidiaries
were also affirmed.
The outlooks on both CapOne and the bank subsidiaries were changed to
stable from negative, reflecting Moody's assessment that the firm
will continue to generate solid profitability and the deterioration in
asset quality, driven by the still elevated rate of unemployment
in the US will be modest, over the next 12-18 months.
The following rating actions were taken:
Affirmations:
..Issuer: Capital One Bank (USA), N.A.
.... Adjusted Baseline Credit Assessment,
Affirmed a3
.... Baseline Credit Assessment, Affirmed
a3
.... LT Counterparty Risk Assessment,
Affirmed A2(cr)
.... ST Counterparty Risk Assessment,
Affirmed P-1(cr)
.... LT Counterparty Risk Rating (Local Currency),
Affirmed A3
.... LT Counterparty Risk Rating (Foreign
Currency), Affirmed A3
.... ST Counterparty Risk Rating (Local Currency),
Affirmed P-2
.... ST Counterparty Risk Rating (Foreign
Currency), Affirmed P-2
.... LT Issuer Rating, Affirmed Baa1,
Stable from Negative
....LT Bank Deposits, Affirmed A1,
Stable from Negative
....ST Bank Deposits, Affirmed P-1
....ST Bank Note Program, Affirmed (P)P-2
....Senior Unsecured Bank Note Program,
Affirmed (P)Baa1
....Subordinate Bank Note Program, Affirmed
(P)Baa1
....Subordinate Regular Bond/Debenture,
Affirmed Baa1
....Senior Unsecured Regular Bond/Debenture,
Affirmed Baa1, Stable from Negative
..Issuer: Capital One Financial Corporation
....Subordinate Shelf, Affirmed (P)Baa1
....Senior Unsecured Shelf, Affirmed
(P)Baa1
....Preferred Shelf, Affirmed (P)Baa2
....Preferred Non-cumulative Shelf,
Affirmed (P)Baa3
....Pref. Stock Non-cumulative,
Affirmed Baa3 (hyb)
....Subordinate Regular Bond/Debenture,
Affirmed Baa1
....Senior Unsecured Regular Bond/Debenture
(Local Currency), Affirmed Baa1, Stable from Negative
....Senior Unsecured Regular Bond/Debenture
(Foreign Currency), Affirmed Baa1, Stable from Negative
..Issuer: Capital One, N.A.
.... Adjusted Baseline Credit Assessment,
Affirmed a3
.... Baseline Credit Assessment, Affirmed
a3
.... LT Counterparty Risk Assessment,
Affirmed A2(cr)
.... ST Counterparty Risk Assessment,
Affirmed P-1(cr)
.... LT Counterparty Risk Rating (Local Currency),
Affirmed A3
.... LT Counterparty Risk Rating (Foreign
Currency), Affirmed A3
.... ST Counterparty Risk Rating (Local Currency),
Affirmed P-2
.... ST Counterparty Risk Rating (Foreign
Currency), Affirmed P-2
.... LT Issuer Rating, Affirmed Baa1,
Stable from Negative
.... LT Bank Deposits, Affirmed A1,
Stable from Negative
.... ST Bank Deposits, Affirmed P-1
....ST Bank Note Program, Affirmed (P)P-2
....Senior Unsecured Bank Note Program,
Affirmed (P)Baa1
....Subordinate Bank Note Program, Affirmed
(P)Baa1
....LT Deposit Note/CD Program, Affirmed
(P)A1
....Senior Unsecured Regular Bond/Debenture,
Affirmed Baa1, Stable from Negative
Outlook Actions:
..Issuer: Capital One Bank (USA), N.A.
....Outlook, Changed To Stable From
Negative
..Issuer: Capital One Financial Corporation
....Outlook, Changed To Stable From
Negative
..Issuer: Capital One, N.A.
....Outlook, Changed To Stable From
Negative
RATINGS RATIONALE
The affirmation of the bank subsidiaries' a3 BCAs and the ratings
for both CapOne and its bank subsidiaries reflects the strength of the
credit card franchises and success in developing sound liquidity and funding
profiles. The credit card business is CapOne's core business,
which generated 56% of pre-tax income from recurring operations
in 2020, and accounted for 41% of total loans, as of
31 March 2021. CapOne's sound risk culture underpins its track
record of strong profitability and well managed asset risk. However,
the firm's key credit challenge, which is inherent in its
business profile, is its high exposure to US consumers, making
it vulnerable to economic shocks as well as to regulatory risks.
The affirmation of the a3 BCAs also reflects the bank subsidiaries' strong
deposit business and solid liquidity profiles. The bank subsidiaries
have a solid branch network along with a leading direct banking platform
(Capital One 360). The firm's solid liquidity position protects
it against a severe disruption in the funding markets through a variety
of measures, in Moody's view.
Even with elevated unemployment, along with other consumer lenders,
CapOne's asset quality has been exceptional with delinquencies and
charge-offs declining materially over the last year. The
April US unemployment rate of 6.1% remains well above the
3.5% rate before the onset of the coronavirus pandemic and
would typically cause delinquencies to increase sharply. The decline
in delinquencies contrary to this usual relationship is largely explained
by the massive amount of fiscal stimulus, which has raised personal
income as well as savings even as unemployment spiked. In addition,
consumer asset quality has been aided by accommodative monetary policy,
payment and eviction moratoriums, and a strengthening job market
in recent months.
Along with other consumer lenders, Moody's expects CapOne's
consumer loan delinquencies to be largely flat for much of 2021,
before rising late in the year and peaking moderately above 2019 levels
in 2022.
Moody's expects CapOne's profitability, which has historically
proven to be higher than the per-average, to remain solid
over the next 12-18 months, with net income to average assets
averaging around 1.5% excluding reserve releases.
These profitability levels demonstrate the strength of its business and
solid risk management.
The change in outlook to stable from negative reflects the improving operating
environment in the US and Moody's view that CapOne's material
buildup of reserves is sufficient to absorb expected coronavirus pandemic-related
net charge-offs. Moody's expects CapOne to maintain
solid buffers against stress losses, even as reserve releases and
shareholder distributions continue, and to maintain strong funding
and liquidity over the next 12-18 months.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The bank subsidiaries' a3 BCAs could be upgraded if they prudently diversify
their loan portfolios, in particular reduce their reliance on consumer
exposure, and continue to demonstrate above peer average profitability
and resilience in credit cycles, while maintaining good funding
profiles and solid capitalization. Higher BCAs would likely lead
to ratings upgrades.
The bank subsidiaries' a3 BCAs could be downgraded if capitalization weakens
materially, such as tangible common equity to risk weighted assets
falling below and expected to remain below 10.0%.
In addition, the BCAs could be downgraded in the event that asset
performance is weaker than Moody's current expectations or if liquid
resources decline materially, making the firm vulnerable to market
shocks. Lower BCAs would likely lead to ratings downgrades.
The principal methodology used in these ratings was Banks Methodology
published in March 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1261354.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
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Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
by Moody's Investors Service Limited, One Canada Square,
Canary Wharf, London E14 5FA under the law applicable to credit
rating agencies in the UK. Further information on the UK endorsement
status and on the Moody's office that issued the credit rating is
available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Warren Kornfeld
Senior Vice President
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Andrea Usai
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
