Nothing In Capital One Employee Wallets, Except Pink Slips (COF)

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Capital One (NYSE:COF) is closing its wholesale mortgage unit called GreenPoint Mortgage and is lowering guidance.  The company has revised 2007 EPS guidance down by $2.15 to $5.00 per share, and will record close to $860 million in charges.  Capital One will close GreenPoint’s California- based headquarters along with 31 locations across 19 states that will result in the elimination of approximately 1,900 positions with the vast majority of these positions being eliminated by the end of the year.

Current conditions in the secondary mortgage markets create significant near-term profitability challenges, given the company’s "originate & sell" business model. Further, recent and continuing developments in the mortgage markets reduce the long- term outlook for profitability in the business, as the company expects markets for prime, non-conforming mortgage products are likely to remain challenged for the foreseeable future. GreenPoint Mortgage will cease making new loan commitments immediately, however, it will continue to meet its contractual obligations to customers for loan commitments that are in the pipeline with rates locked.

GreenPoint Mortgage became a subsidiary of Capital One in December 2006, as part of the company’s acquisition of North Fork Bancorporation. GreenPoint’s focus had long been the prime non-conforming and near-prime markets, especially the Alt-A mortgage sector. Capital One Home Loans, based in Overland Park, KS, and Capital One N.A., including its 725 local retail bank branch locations in New York, New Jersey, Connecticut, Texas, and Louisiana, are not directly affected by this decision.  Capital One intends to continue to originate and sell mortgage loans through Home Loans and its bank branches where it has direct interactions with customers.  Capital One is also retaining a substantial $12.5 Billion "held for investment" mortgages in a portfolio.

Shares closed down almost 3% at $66.72 in normal trading today.  The news initially took Capital One stock down over 10% more in after-hours trading, but shares are only down about 5% at $64.00.  The 52-week trading range is $59.49 to $83.84.  Hopefully this won’t hurt the marketing budget, because they have some of the few funny commercials left.

Jon C. Ogg
August 20, 2007

Jon Ogg can be reached at; he does not own securities in the companies he covers.