Capital One Financial Corp.'s chief financial officer links delinquencies in the bank's credit card portfolio to the cardholders' job situations. Gary L. Perlin, CFO and executive vice president, told investors at the Keefe, Bruyette & Woods Diversified Financial Services conference last week that the bank went back 20 years to study the cycles in delinquencies. "Employment is the critical variable for understanding how any unsecured loan book is going to play out over time, since we are talking about people's ability to pay," Perlin says. The bank underwrites unsecured card loans entirely on ability to pay, he notes, adding that credit card delinquencies have been a leading indicator of challenges in the employment market. "I can't say where we are in the employment cycle, so I can't tell you that we have finished with the increase in card delinquencies," Perlin says. "There are lots of good reasons not to assume that." Looking at past trends, Perlin calls credit card delinquencies a leading indicator that the job market may remain weak for some time. On the other side of the cycle, he said, "we should see credit card delinquencies curing faster, or at least ahead of the actual trend in employment." Cap One says that occurs because cardholders "sense what's going on" in the marketplace and with their employers "and start to change their behavior before the actual changes take place around them." The bank has built allowances to cover 12 months of loan losses and expects loss rates to reflect economic, employment and other negative trends, says Perlin.

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