Domestic Revenue Margin
Sanjay Sakhrani – KBW: I had a couple of questions. First, I know this has been a tough one to answer, but the U.S. revenue margin seems to be doing better than expected when anticipating some of the impacts you gave us previously. Outside of kind of seasoning going forward, do you feel these levels are sustainable? And then second, just the tax rate, if you could help us with what the ongoing tax rate estimate is, that’d be great.
Richard D. Fairbank – Founder, Chairman and CEO: So let’s talk a bit about the U.S. card revenue margin. Using only held-for-investment loans as our denominator, revenue margin in the quarter was 18.7% strikingly up from 17.6% in the first quarter. The increase was driven by the incremental Best Buy held-for-sale impacts of about 65 basis points combined with seasonal margin increases and strong credit; and offset a bit by the franchise enhancements we’ve talked about in the prior quarters. The second quarter – it had a full quarter’s impact of Best Buy held-for-sale and adjusting for that, underlying revenue margin is 16.8%. So, when we look out into the future about our revenue margin, there’s some puts and takes, but you, of course, have seasonality and effects of purchase accounting, but kind of looking past those, let me just talk about the more fundamental puts and takes. And there’s really kind of one primary one in each direction. You have the franchise enhancement activities. This is where we’re making choices that end up reducing revenue by changing some of our practices or activities to help enhance our franchise and customer experience. And we have kind of – we’ve made some forward-looking guidance about those and we are pretty much on track relative to those. The other direction really is having Best Buy as it moves out of our portfolio. Best Buy has a revenue margin that’s lower than the portfolio average. And so these two factors generally kind of offset each other in the medium-term. So, while there are many other factors that can drive revenue margin, like industry pricing and credit performance and growth and adding partnership and things like that, the sort of on an adjusted basis, as we’ve talked about this, the revenue margin that we’re seeing is pretty consistent with historical ROAs, and is generally, I think, from a fundamental basis pretty sustainable.
Stephen S. Crawford – CFO: Taxes. So in taxes, we were a little over 30% in the first quarter. The biggest factor which drove the quarter-over-quarter increase was an expectation for more income. There were some discrete items as well. There was a catch-up adjustment that happens also to incorporate the higher expectations earnings throughout the year. So that’s why the tax rate jumped up to 32% in the second quarter. I can’t go out too far, but I would say for the year it’s probably going to be between what it was for the first and second quarter.
Brian Foran – Autonomous Research: I was wondering if you could, I guess, help us think about expenses a little further out. In the recent presentation you gave some comments around third-party expenses being high relative to peers and that needing kind of three to four years to work its way through. And also, if you could put it in the context of how to think about expenses within the card business specifically? I mean I just always kind of get hung up on the expenses running at around 9% to loans, and (sure), you kind of look at it more on a revenue basis, but 9% expense to loans seems like a very high number relative to history and relative to peers still?
Richard D. Fairbank – Founder, Chairman and CEO: Right. Brian, let me, in fact, take your point about the card business. First, there are a number of metrics at Capital One that because of our business mix and the way we manage the business that are apples and oranges relative to competitors, and certainly the cost per balance is a classic one of those. Costs are really driven by customers, and our average balance per customer tends to be lower. We have a different mix. We avoid the high balance revolvers. So, we are very focused on really driving to a more and more efficient place in the card business. But I think that our destination – we always look at competitors from comparison, but I think that we see real opportunities to improve efficiency, but it’s driven in the context of still a very different kind of business mix, particularly as manifested by that metric. Also, if you include in an expense calculation marketing, we’ve tended to avoid teasers – a lot of competitors are very heavy – use teasers very extensively. In some ways, our marketing expense are someone else’s balanced transfer teasers, for example. So, but beyond those sort of calibration points, we have great energy and passion around the expenses. While we are driving efficiency in every single way that we manage the business, we have highlighted both third-party expenses and digital as particularly areas for opportunity. Over the years, we outsourced quite a few activities. I think in many ways, it may be that that’s relative to a number of players. We have a higher percentage of things outsourced. I’m not totally sure of that, but we believe there is great leverage to really get best-in-class with respect to third-party expenses. One thing that we have done is to mobilize a lot more of the third-party expense, and negotiating activities to very centralized, highly talented, really experienced team, and we’re already seeing in that movement some pretty significant saving opportunities. So, I think there’s an opportunity there for some steady increases – improvements in expense over time. The other kind of biggest one to highlight is in the area of digital. I mean, I think it’s not an exaggeration to say, we’re living through one of the most profound changes that’s happened in the history of mankind and banking is certainly no exception. And frankly, I think banking has been quite belated relative to many other industries with respect to the digital revolution. Most of the things that we’re doing to drive leadership in digital are not motivated primarily to reduce cost, because I think the benefits are so great with respect to the customer experience, the ability to be fast to market, the ability to drive information-based strategies in real-time and so on, but I am certainly struck by the fact that most transactions – the significant majority of all transactions that happen outside of a digital channel in a bank, either a card business or in a bank could be done digitally by customers. Now, in the end, they’re going to make their own choices, but for us, the drive to digital is a multi-pronged effort to; first of all, create great digital capabilities and give our customers a customer experience that can enable them to choose digital as a primary way of banking. Secondly, if you build it, they won’t necessarily come, in the sense that driving customers to digital is a really key part of this thing. And thirdly, digital is not just about how we interface with our customers, but in a sense digitizing the whole Company, and really running the Company, operating and most importantly take the mindset of digital is really – it has tremendous leverage to it. So this is not something that’s going to transform economics overnight. But I think that both third-party and expense and the digital opportunity give us something that I think we can drive to for multiyear opportunities to – in the end, raise our game and along the way get more efficient.
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