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June 1, 2006
Mail Stop 4561
By U.S. Mail and facsimile to (804)968-3580
Mr. Richard D. Fairbank
President and Chief Executive Officer
Capital One Financial Corporation
1680 Capital One Drive
McLean, VA 22102
Re: Capital One Financial Corporation
Form 10-K for the Fiscal Year Ended December 31, 2005
Amended Form 10-K for the Fiscal Years Ended December 31, 2005 and
2004
Amended Form 10-Q for the Fiscal Quarters Ended March 31, 2005,
June 30, 2005, and September 30, 2005
File No. 001-13300
Dear Mr. Fairbank:
We have reviewed your response letter dated May 3, 2006, and
have the following additional comments. We welcome any questions
you
may have about our comments or on any other aspect of our review.
Feel free to call us at the telephone numbers listed at the end of
this letter.
Form 10-K for the fiscal year ended December 31, 2005
Note 1 - Significant Accounting Policies
Loan Securitizations, page 79
1. We note your response to comments 1 and 2 of our letter dated
April 20, 2006. We do not believe that in order for a newly
originated or acquired receivable to be classified as held for
sale
in accordance with SOP 01-6, management must have a commitment to
sell such loan upon origination or acquisition. We believe that
the
guidance in paragraph 8(a) of SOP 01-6 indicates that newly
originated or acquired receivables should be classified as held
for
investment (or not held for sale) only when management has the
intent
and ability at origination to hold the loans receivable for the
foreseeable future or until maturity or payoff. We do not believe
that there are specific criteria or bright line tests for
determining
when management has formed the intent to hold newly originated or
acquired receivables. Like other intent-based determinations, we
believe whether or not management has an intention to hold should
be
based on management`s expectations at the time.
Please tell us how management determined in 2003, 2004 and 2005
that
it had the intent to hold all newly originated and acquired
receivables (except for certain mortgage loans classified as held
for
sale as described in your response letter) for the foreseeable
future.
2. As a related matter, please tell us the terms and
characteristics
of loans which have been historically securitized and a
quantification of the time period you consider to be the
"foreseeable
future" when making the determination to classify loans as either
held for investment or held for sale.
3. Provide us with an explanation that reconciles your
considerations
regarding your intent to hold all newly originated and acquired
receivables for the foreseeable future with your history of
securitizing a significant portion of loans originated and your
disclosure on page 54 that you have used the securitization of
consumer loans as a significant source of liquidity. Tell us how
your intent is reflected in internally prepared budgets,
forecasts,
and liquidity plans.
Note 14 - Income Taxes, page 101
4. We note your response to comment 9 from our letter dated April
20,
2006. In addition to the proposed future filing revisions that
you
describe in your May 3, 2006 response letter, please also revise
future filings to clarify that the deferred tax liability line
item
currently captioned as "deferred revenue" represents temporary
differences associated with tax treatment of credit card income
(which is not deferred for US GAAP purposes).
Note 22- Derivative Instruments and Hedging Activities, page 112
5. We note based on your response to comment 12 from our letter
dated
April 20, 2006, that as of December 31, 2005, you used the short-
cut
method of effectiveness testing for cash flow and fair value
hedges
with notional amounts of $3.722 billion and $3.737 billion,
respectively. In the interest of helping us to more fully
understand
how you account for your hedging activities, please tell us the
specific asset or liability being hedged and corresponding
principal
amount hedged for each type of cash flow and fair value hedge
where
effectiveness was measured using the short-cut method as of
December
31, 2005.
6. As a related matter, for each type of short-cut cash flow and
fair
value hedge involving a different category of hedged assets or
liabilities (e.g. junior subordinated debentures, prime-based
loans,
brokered certificates of deposit), please tell us how you
considered
the criteria of paragraph 68 of SFAS 133 in determining it was
appropriate to use the shortcut method to assess hedge
effectiveness.
Please specifically address how you considered any unusual
features
associated with the hedged asset or liability (such as interest
rate
deferral options on junior subordinated debentures or commissions
paid on brokered certificates of deposit) in determining that use
of
the shortcut method was appropriate. In the interest of clarity,
please consider presenting your response in a tabular format.
*****
Please respond to these comments within 10 business days or
tell us when you will provide us with a response. Please furnish
a
cover letter that keys your responses to our comments and provides
any requested information. Detailed cover letters greatly
facilitate
our review. Please understand that we may have additional
comments
after reviewing your responses to our comments.
You may contact Amanda Roberts, Staff Accountant, at
(202)551-
3417 or me at (202)551-3424 if you have questions.
Sincerely,
Lisa Haynes
Reviewing Accountant
CC (via fax): Steve Richter (804) 290-2997
Mr. Richard D. Fairbank
Capital One Financial Corporation
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