Does Capital One's Lower SCB Reflect Robust Capital Discipline?

Globe and Mail

07-07-2025

Last week, Capital One COF announced that its preliminary Stress Capital Buffer (SCB) has been set at 4.5% by the Federal Reserve. This will be effective from Oct. 1, 2025, through Sept. 30, 2026. The requirement, determined through the 2025 Comprehensive Capital Analysis and Review (CCAR), is lower than the previously disclosed SCB of 5.5% in effect through Sept. 30, 2025. This preliminary SCB is pending final confirmation by the Fed, which is expected to be announced by Aug. 31, 2025.
The development strengthens Capital One's financial position by increasing its capital flexibility. With less capital constrained by regulatory buffers, the company can allocate resources more efficiently toward strategic priorities, such as growth initiatives like acquisitions, product innovation and potential shareholder returns, including dividends and share repurchases. This optimized capital deployment supports higher returns on equity and bolsters long-term profitability.
In April 2025, the Fed issued a notice of proposed rulemaking to revise how the SCB is calculated. Under the proposal, SCB requirements would be based on the average of stress test results over two consecutive years, rather than a single year.
As a testament to its financial strength, in May, Capital One acquired Discover Financial in an all-stock deal valued at $35.3 billion, reshaping the credit card industry landscape, creating a behemoth and unlocking substantial value for shareholders. The company is now well-placed to capture a bigger share of spending on cards.
Also, since July 2021, Capital One has maintained its quarterly dividend of 60 cents per share, with a payout ratio currently at 16% of earnings. Further, it has a share repurchase program in place. As of March 31, 2025, nearly $3.88 billion worth of repurchase authorization remained.
How Capital One's Peers Fared in Terms of SCB
A total of 22 financial institutions, including Capital One, were under this year's CCAR. Similar to COF, JPMorgan JPM noted that under the current SCB framework, the Fed has set its preliminary SCB requirement at 2.5%. This is lower than JPMorgan's previous SCB of 3.3%.
Post-clearing the 2025 stress test, the company announced enhanced capital plans. JPMorgan intends to hike its quarterly dividend by 7.1% to $1.50 per share and authorized a share repurchase program worth $50 billion, which became effective as of July 1.
Further, under CCAR, this year, Goldman 's GS SCB set by the central bank is lower than the previous year. The company's SCB will be 3.4% from Oct. 1, 2025, through Sept. 30, 2026. At present, Goldman's SCB is 6.1%.
Like JPM, Goldman cleared this year's stress test and announced a raise in its quarterly dividend. The company plans to increase its dividend by 33.3% to $4 per share.
Capital One's Price Performance and Zacks Rank
This year, shares of Capital One have gained 23.8%, outperforming the industry 's rally of 21.9%.
COF currently has a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Only $1 to See All Zacks' Buys and Sells
We're not kidding.
Several years ago, we shocked our members by offering them 30-day access to all our picks for the total sum of only $1. No obligation to spend another cent. Thousands have taken advantage of this opportunity.
Thousands did not - they thought there must be a catch. Yes, we do have a reason. We want you to get acquainted with our portfolio services like Surprise Trader, Stocks Under $10, Technology Innovators, and more, that closed 256 positions with double- and triple-digit gains in 2024 alone.
See Stocks Now >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
The Goldman Sachs Group, Inc. (GS): Free Stock Analysis Report
JPMorgan Chase & Co. (JPM): Free Stock Analysis Report
Capital One Financial Corporation (COF): Free Stock Analysis Report