Capital One impresses in the third quarter with profit increase due to high interest rates

Capital One reported a 1.6% increase in profit for the third quarter, aided by rising interest rates that allow the consumer lender to earn higher revenues from customers repaying their credit card debts. This positive result contrasts with industry trends, where other financial companies have had to accept a decline in interest income. The reason for this is the comparatively high interest rates on credit card debt, as opposed to mortgages and other loans. Capital One's net interest income, which is the difference between interest earned on loans and interest paid to customers on deposits, grew by nearly 9% in the third quarter to about $8.1 billion. Also noteworthy is the performance of the smaller competitor Discover Financial, which Capital One planned to acquire in a $35 billion deal this year, and which also reported a 10% increase in quarterly interest income. Nevertheless, lenders are preparing for potential consumer strain due to persistently high interest rates, as consumers are already grappling with slower wage growth and dwindling reserves. Provisions for credit losses amounted to $2.48 billion in the quarter, compared to $2.28 billion the previous year. Capital One's default rate rose to 3.27% in the third quarter compared to 2.56% the previous year. These credit trends reflect the common development among major U.S. lenders. Experts emphasize that the rising defaults are more a return to normality post-pandemic, rather than an indication of deteriorating economic conditions. Adjusted net income rose to $1.73 billion compared to the previous year, equivalent to $4.51 per share. At the same time, total net revenues in the quarter climbed by 7% to $10 billion.