Capital One's Fundamentals Will Prevail

Even though this financial-services company ditched its mortgage-lending subsidiary, it still has a big cash cow in its wallet.

What's in your wallet? If you're Capital One, until 48 hours ago, it was a ticking, public-relations time bomb called GreenPoint. This mortgage-lending subsidiary threatened to explode in the back pocket of a financial-services company that has become large and profitable by peddling credit cards. (Perhaps you've seen Capital One's "what's in your wallet?" ad campaign on television.)

On August 20, Capital One (symbol COF) announced that it would shut down GreenPoint Mortgage and lay off its 1,900 employees in 31 offices. For several weeks prior to the announcement the company's shares had taken a severe beating on Wall Street. But on August 21, investors rewarded Capital One's prudence by bidding up its share price 2.6%, to $68.47. Analysts applauded the company's foresight. "While we are disappointed to find the company's investment in GreenPoint must be fully written off, at least there will no longer be uncertainty regarding GreenPoint's prospects," Bear Stearns analyst David Hochstim wrote.

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Bob Frick
Senior Editor, Kiplinger's Personal Finance