OREANDA-NEWS. Fitch Ratings has affirmed Capital One Financial Corporation's (COF) ratings at 'A-/F1'. The Rating Outlook remains Stable.

The rating action follows a periodic review of the large regional banking group, which includes BB&T Corporation (BBT), Capital One Finance Corporation (COF), Comerica Incorporated (CMA), Fifth Third Bancorp (FITB), Huntington Bancshares Inc. (HBAN), Keycorp (KEY), M&T Bank Corporation (MTB), MUFG Americas Holding Corporation (MUAH), PNC Financial Services Group (PNC), Regions Financial Corporation (RF), SunTrust Banks Inc. (STI), US Bancorp (USB), Wells Fargo & Company (WFC), and Zions Bancorporation (ZION).

Company-specific rating rationales for the other banks are published separately, and for further discussion of the large regional bank sector in general, refer to the special report titled 'Large Regional Bank Periodic Review,' to be published shortly.

KEY RATING DRIVERS

IDRs, VRs, AND SENIOR DEBT

The affirmation of COF's ratings continues to be supported by strong earnings performance, which over time has remained above the average of its large regional peer group. In Fitch's view, this is largely driven by COF's comparatively higher net interest margin, given the company's comparatively higher yielding asset mix relative to peer banks. This has also been boosted by higher interchange revenue over the last year, as COF has benefited from higher purchase volumes from its customer base.

COF also boasts a relatively good efficiency ratio relative to peer banks which has also helped to support its earnings performance. While COF's 2Q15 earnings were impacted by a large restructuring charge, the charge was primarily due to management's efficiency initiatives, which are focused on making the company a more digitally driven enterprise. Over time, Fitch believes this strategy will contribute to making COF's business model more scalable and therefore help maintain its strong earnings performance.

Fitch views COF's capital ratios as near the average of some peer banks. However, given COF's ability to accrete capital via growth in retained earnings more quickly than some peers due to the earnings power noted above helps to provide a buffer to these ratios.

Fitch believes the long-term evolution of COF's funding profile to be supportive to today's rating action. Over the last several years, COF has moved away from a business model almost entirely reliant on wholesale borrowings and securitizations to one being almost entirely reliant on core deposit funding via a mix of organic deposit growth and acquisitions.

Although COF has a combination of traditional branch banking deposits and internet based deposits, COF's internet deposit platform allows the company to offer more competitive deposit rates than others who rely more heavily on a more expensive branch based distribution model. It remains to be seen how deposit re-pricing (deposit beta) dynamics will evolve in a rising interest rate environment for banks like COF that rely more heavily on technology based distribution model. To the extent that the deposit re-pricing dynamics are more intense, it could make the company's interest rate sensitivity more muted over a medium to longer-term time horizon.

Credit quality for COF (as well as the rest of the industry) has generally continued to improve, and Fitch believes is likely at or near a cyclical trough. Fitch would expect some deterioration in credit metrics going forward, which is incorporated in today's rating action.

Fitch believes the potential for some credit deterioration is more prevalent in the company's auto loan portfolio, where competition continues to intensify particularly as some auto-manufacturer owned lenders become more aggressive in the space. Additionally, areas Fitch is watching for deterioration include COF's taxi medallion lending portfolio and its energy loan portfolio.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

COF's subordinated debt is notched one level below its VR of 'a-' for loss severity. COF's preferred stock is notched five levels below its VR, two times for loss severity and three times for non-performance. These ratings are in accordance with Fitch's criteria and assessment of the instruments non-performance and loss severity risk profiles and have thus been affirmed due to the affirmation of the VR.

LONG- AND SHORT-TERM DEPOSIT RATINGS

The uninsured deposit ratings of Capital One Bank (USA), National Association (COBNA), Capital One National Association (CONA), and Chevy Chase Bank, F.S.B. are rated one-notch higher than COF's IDR and senior unsecured debt because U.S. uninsured deposits benefit from depositor preference. U.S. depositor preference gives deposit liabilities superior recovery prospects in the event of default.

HOLDING COMPANY

COF's IDR and VR are equalized with those of its operating companies and bank, reflecting its role as the bank holding company, which is mandated in the U.S. to act as a source of strength for its bank subsidiaries. The ratings are also equalized reflecting the very close correlation between holding company and subsidiary failure and default probabilities.

SUBSIDIARY AND AFFILIATED COMPANY
The VRs of COBNA and CONA are equalized with COF's VR reflecting Fitch's view that it is core to COF's business strategy and financial profile.

SUPPORT RATING AND SUPPORT RATING FLOOR

COF has a Support Rating of '5' and Support Rating Floor of 'NF'. In Fitch's view, COF is not systemically important and therefore, the probability of support is unlikely. IDRs and VRs do not incorporate any support.

RATING SENSITIVITIES

VR, IDRs, AND SENIOR DEBT

COF's ratings have remained largely stable over the last several years and are well situated relative to its peer group.

Fitch believes there is likely only modest upwards rating potential for COF's ratings at this time. From a creditor's perspective COF's loan portfolio is more concentrated in credit cards and other consumer assets relative to higher rated peer institutions. In order for some upward rating momentum to build, Fitch believes COF would need to develop a more diversified loan portfolio at a measured pace with evidence of strong underwriting discipline and appropriate risk controls to manage the diversification, all of which may take some time to eventuate to the extent it ever does.

Alternatively, should COF's asset quality metrics deteriorate faster than industry averages or should funding costs accelerate at a rate faster than industry averages there could be some negative pressure on ratings or the Rating Outlook over a medium to longer term time horizon.

Additionally, while Fitch views favorably management's strategy of transforming COF into an even more digitally driven enterprise as it should enhance the company's economies of scale, to the extent that this also makes the company more reliant on technology it has the potential to increase some elements of operational risk. While not anticipated, if a large operational loss were to occur, Fitch would review COF's ratings at that time to determine if a negative action were appropriate.

SUBORDINATED DEBT AND OTHER HYBRID SECURITIES

The ratings for COF and its operating companies' subordinated debt and preferred stock are sensitive to any change to COF's VR.

LONG- AND SHORT-TERM DEPOSIT RATINGS

The long-and short-term deposit ratings are sensitive to any change to COF's long-and short-term IDR.

HOLDING COMPANY

Should COF's holding company begin to exhibit signs of weakness, demonstrate trouble accessing the capital markets, or have inadequate cash flow coverage to meet near-term obligations, there is the potential that Fitch could notch the holding company IDR and VR from the ratings of the operating companies.

RATING SENSITIVITIES - SUBSIDIARY AND AFFILIATED COMPANY
As the IDRs and VRs of the subsidiaries are equalized with those of COF to reflect support from their ultimate parent, they are sensitive to changes in the parent's propensity to provide support, which Fitch currently does not expect, or from changes in COF's IDRs.

To the extent that one of COF's subsidiary or affiliated companies is not considered to be a core business, Fitch could also notch the subsidiary's rating from COF's IDR.

SUPPORT RATING AND SUPPORT RATING FLOOR

Since COF's Support and Support Rating Floors are '5' and 'NF', respectively, there is limited likelihood that these ratings will change over the foreseeable future.

FULL LIST OF RATING ACTIONS

Fitch has affirmed the following ratings:

Capital One Financial Corporation
--Long-term IDR at 'A-'; Outlook Stable;
--Short-term IDR at 'F1';
--Viability at 'a-';
--Senior unsecured debt at 'A-';
--Senior Shelf at 'A-'
--Subordinated debt at 'BBB+';
--Preferred stock at 'BB';
--Support at '5';
--Support Floor at 'NF'.

Capital One Bank (USA), National Association
--Long-term IDR at 'A-'; Outlook Stable;
--Short-term IDR at 'F1';
--Viability at 'a-';
--Senior unsecured debt at 'A-';
--Subordinated debt at 'BBB+';
--Short-term debt at 'F1';
--Long-term deposits at 'A';
--Short-term deposit at 'F1';
--Support at '5';
--Support Floor at 'NF'.

Capital One National Association
--Long-term IDR at 'A-'; Outlook Stable;
--Short-term IDR at 'F1';
--Viability at 'a-';
--Senior unsecured debt at 'A-';
--Subordinated debt at 'BBB+';
--Short-term debt at 'F1';
--Long-term deposits at 'A';
--Short-term deposit at 'F1';
--Support at '5';
--Support Floor at 'NF'.

Chevy Chase Bank, F.S.B
--Long-term deposits at 'A'.

North Fork Bancorporation, Inc.
--Subordinated debt at 'BBB+'.