Capital One Financial Corporation (NYSE:COF) Q2 2019 Earnings Conference Call Transcript

Jul 18, 2019 • 05:00 pm ET

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Capital One Financial Corporation (NYSE:COF) Q2 2019 Earnings Conference Call Transcript

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Q & A
Operator
Operator

Thank you. [Operator Instructions] We'll take our first question from Sanjay Sakhrani with KBW.

Analyst
Sanjay Sakhrani

Thanks. First question is on the interest rate environment and the broader market expectations of rate cuts. Scott, could you just talk about how we should think about the NIM trajectory in that backdrop? I know Rich spoke to the pressure from higher deposit funding costs, but just how you guys expect to manage through that?

Executive
Scott Blackley

Yeah. Thanks, Sanjay. So as a reminder, I think we've said this many times that we really don't seek to bet on interest rate movements and we try to maintain a pretty neutral rate position relative to implied forwards. So from here, I would say that a flatter or inverted yield curve is going to be a modest headwind to our NIM. On flip side of that is steeper yield curve is going to be a modest tailwind.

As you know, the yield curve flattened in Q2 and long-term swap rates are now down to around 2% and at that level of long-term rates, the flatter yield curve has created probably a few basis points of headwinds -- of headwind to NIM in our full year 2019 net interest margin. So that's a little bit of where I see the interest rates impacting us.

Analyst
Sanjay Sakhrani

Okay. And then my follow-up question on that partnership loss. Was it a matter of misalignment between yourselves and the partner or is it sort of a reflection of a more heightened competitive environment? And maybe, Rich, you can just speak to the broader competitive environment while you're at it. Thanks.

Executive
Richard D. Fairbank

So I don't think there's any big significance to read into this. What I would say is, with our digital transformation and where we're going in our card business, we are focusing more on partners that are industry leaders and scale players. And we continue to be very excited about the card partnership business. And of course, with Walmart coming on, we have a lot of momentum. We are continuing to build capabilities that differentiate Capital One from other players at auction, so that we can build a growingly valuable partnership business both for ourselves and for the partners, who team with us to build their franchise.

Executive
Jeff Norris

Next question, please.

Operator
Operator

And our next question comes from Don Fandetti with Wells Fargo.

Analyst
Don Fandetti

Good evening. Rich, could you talk a little bit about the auto business. It looks like the yields moved up and I know some of the peers that have been reporting recently that are big players in auto lending are talking about rates on new originations being higher than the current portfolio and having arguably some pricing power, can you talk a bit about that?

Executive
Richard D. Fairbank

I don't think we're struck by any significant movement in pricing power. I think we're at a pretty good place competitively in the marketplace. As you've watched our business and the conversation we have on all of these calls where, you know, we'll -- we'll -- we'll really see a