Capital One Financial Assessment External

Capital One Financial Assessment

External Environmental Analysis

The past two and a half years have been unquestionably volatile and even dangerous for the banking and financial industries, and Capital one was not entirely spared form this adversity. The new landscape in these sectors, however, is one with fewer players and thus a greater consolidation of market share amongst the surviving institutions. The right company could take advantage of an abundance of opportunity that now exists in these markets. New credit card regulations and a closer scrutiny of financial practices will dictate new methods of practice to large financial institutions, at least in the short-term; this will provide new challenges to companies unable to adapt quickly, but will provide excellent opportunities for companies that are better able to weather the changes in the current financial and regulatory climate.

There are also several threats that could inhibit growth and limit profitability if not prepared for and adequately responded to. New regulations have already begun to take effect on the credit card industry specifically and the financial industry as a whole, with definite negative effects on Capital One's bottom line. The general downward trend in the entire industry, however, can actually be taken as a positive sign in the long run. The financial industry cannot disappear entirely, and surviving companies will not only have a larger market share, but will be positioned to help design the market and create, through negotiations with regulators, the environment in which they do business. The worst of the threat is over; Capital One is well positioned to take advantage of the changing landscape. Response to regulation and a rapid expansion of market share are key strategic priorities.

Internal Environmental Analysis

Capital One has already shown a great deal of versatility and durability in its short history, surviving as a monoline when most others went under or were sold off through aggressive and innovative marketing campaigns, and later through entrance into the banking industry. These are key strengths that the company leadership and culture still possess, and their recent acquisition of Chevy Chase Bank shows that they are still viable, diversifying, and as aggressive as ever. Their overall gain in assets despite significant losses in stocks and profits in 2008 shows that Capital One is strategically positioned to continue their growth in the banking sector despite -- and in many ways because of -- the recent turmoil.

At the same time, Capital one definitely has some internal weaknesses. Their heavy dependence on profits from their credit card operations has already taken a hit from the new consumer protection laws, and these effects will continue to develop in the coming years. At the same time, consumer confidence has dropped significantly, and people spending less -- especially on their credit cards -- will also have an adverse effect on the company's ability to maintain profits and find new consumers. The company's internal focus will need to shift dramatically in order to maintain or increase its current market position.

Corporate and Business Strategy

Capital One's business strategy is highly aggressive, as is evidenced by their innovative move (for a company with their focus) into the banking industry, and their take-over of several regional banks. Capital One also actively recruits new strategists to work directly at the corporate level, and maintains an internal strategy of frequent strategic change and innovative practices. This leads to an incredibly adaptive business strategy; Capital One has remained poised to exploit new opportunities in the changing banking market.

At the corporate level, Capital One has a healthy mixture of steadfast leadership (the CEO has remained unchanged since the company's formation in 1988) and innovation through new partnerships and new personnel. Like their business strategy, aggressiveness and adaptability have been key components of Capital One's corporate strategy. By incorporating new ideas and personnel into the corporate levels of the enterprise while remaining consistent in its leadership and focus, Capital One has remained viable and highly competitive throughout the many changes in environment the company has weathered.

Acquisition Strategy

Capital One's most recent acquisition, Chevy Chase Bank, only seems out of pace given the company's general public profile. The company has previously acquired two other regional banks, and is possibly poised to enter banking on a national level. Though there was a definite strategy shift when the company decided to enter banking, this acquisition strategy has remained strong despite the economic downturn and is a likely reason for their weathering of the chaos.

Given the continued uncertainty many financial firms and banks are still facing, the continuing strategy of acquisitions might be riskier than when the company acquired their first bank in 2005. Continued growth is necessary for increased profitability and market share, but determining the correct acquisitions is difficult in the current climate. Balancing growth and risk management are key strategic concerns in the immediate future.