MW Capital One says consumers are doing OK. Here's where they may be trying to beat tariffs.

By Bill Peters

Company also trims its reserves, and says consumers, for now, are doing a better job keeping up with payments

Credit-card giant Capital One Financial Services Inc. says consumers are hanging in there as the U.S. braces for the fallout from a global trade war, but that there appears to be a bit of a "pull forward" in auto purchases, as consumers try to get ahead of potential price increases.

Chief Executive Richard Fairbank said on Capital One's $(COF)$ quarterly earnings call Tuesday that, so far, the company hasn't seen any big changes in behavior among higher- and lower-income consumers.

"We have not seen a big difference between high-end versus low-end there," he said. "Again, these are very early observations."

Spending "has generally has picked up a little bit in the last week or two," he added. "Whether that is a pull forward or whether that's some other effect remains to be seen, but we haven't seen a striking difference on where on the spectrum that falls."

Earlier in the call, he said that in recent weeks, the company began to see an uptick in customer card spending, particularly for things like electronics. He said the timing of the Easter holiday, as well efforts to stock up amid tariff anxieties, could have been responsible.

Capital One, which also offers auto loans, said more people might also be trying to squeeze in purchases of cars, whose prices could go up by thousands of dollars if U.S. tariffs on imports stick.

"While it's early, when we look at industry data, there appears to be a bit of a pull forward in auto purchases, likely as consumers are trying to get ahead of tariff impacts," Fairbank said.

During the call, he noted that many shoppers continue to struggle with inflation and higher interest rates. And he said more cardholders were paying just the minimum required on their bills, when compared with pre-pandemic levels. Higher car prices, he said, could weigh on demand for car loans.

Still, the bank's provision for credit losses - or money set aside to cover loans that don't get paid - actually fell during the first quarter, which ended on March 31, just before President Donald Trump announced expansive new tariffs that rattled markets. Those reserves fell $273 million to $2.4 billion.

Truist analyst Brian Foran, in a note on Tuesday, said "some may complain" about that move. But Fairbank said U.S. consumers were a "source of strength" in the economy, and said the unemployment rate was still low. Delinquency rates were improving, he said. Charge-offs - or debt the company doesn't think it can recover - dipped.

Capital One reported adjusted earnings per share of $4.06 for the first quarter. That was above FactSet estimates for $3.64. Revenue of $10 billion compared with estimates for $10.06 billion.

Shares were up 2.9% after hours on Tuesday. As of Tuesday's close, the stock was up 15.1% over the past 12 months.

The company reported the results after regulators approved its merger with Discover Financial Services $(DFS)$ last week. In February, the Consumer Financial Protection Bureau also dropped a lawsuit against Capital One that accused the company of "cheating" customers out of interest payments.

Management on Tuesday said Capital One was on track to complete the deal on May 18. The combined company would be the biggest U.S. credit-card issuer, when measured by lending volumes.

Executives, during the call, said the acquisition would help "turbocharge" Capital One's national bank, and talked up longer-term investments, as they try to expand the combined company.

"The key positive was the general commentary on the health of the consumer, spend trends and the credit outlook," Foran said in a separate note on Tuesday. "The negative was the commentary on expenses, including talk of investing to build a globally competitive network. Although I don't know, is it a negative?

"If you had a 10-year time frame, investing in a business where peers trade at 25x earnings is probably a no-brainer," he said. "The problem is none of us have 10-year time frames anymore."

-Bill Peters

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April 22, 2025 20:19 ET (00:19 GMT)

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