1. Investment Analysis By: Devopama Pant Qiao Du Tianlin Fu Date of Presentation:11/18/2014 Investment Analysis By: Devopama Pant Qiao Du Tianlin Fu Date of Presentation:11/18/2014

2. Current Holdings Company Overview Macro-Economic Overview Industry Analysis Strategic Analysis Financial Analysis and Projections Valuation Recommendation Agenda

3. Current Holdings 100 shares bought on Dec 09, 2013 @ $73.13 Current Price: $81.14 (11/17/2014) Gain (as on 11/17): 10.95% Portfolio share(MV): 4.35%

4. COF: Overview U.S. based bank holding company, specializing in credit cards, auto loans, retail banking and mortgages A Fortune 500 company with more than 45M customers One of US top 10 largest banks based on deposits Founded in 1994 by Richard Fairbanks & Nigel Morris Headquartered in McLean, Virginia Richard Fairbanks is current CEO and President 41K employees with businesses in US, UK and Canada Source : http://www.capitalone.com/about/

5. COF: History 1994 Signet Banking Corporation announces its IPO and creation of a new credit card unit, Capital One Financial Corp. 1996COF starts doing business in Canada and the United Kingdom. 1998The company acquires a U.S. auto lending operation. 2001 The company buys online auto finance and elective medical and dental procedures finance businesses. 2005Acquired New Orleans-based Hibernia Bank 2006Acquired North Fork Bank, a New York-area lender 2009Acquired Chevy Chase Bank 2011 Acquired Hudson’s Bay Company - Card Portfolio from GE and Kohl's - Card portfolio from Chase Feb-12Acquired ING Direct, online banking division of ING May-12Acquired HSBC's US Card and Retail Business Sep-13Sale of Best Buy - Card Portfolio to Citibank Source : http://commercialobserver.com/2012/06/capital-one-grows-minus-pains/http://commercialobserver.com/2012/06/capital-one-grows-minus-pains/ 2011,12,13 Annual Reports

6. Experiments USPS negotiated services at bulk discount mailing agreement Softcard (formerly Isis Mobile Wallet) Payment (Feb/2012) Clear Exchange (Feb 2014)~ P-2-P money transfer Decoupled Debit Cards (May/2007)~ opened with “merchant” financial institution

7. Credit Card Growth after 2008 Source : http://www.nilsonreport.com/publication_newsletter_archive_issue.php?issue=1035http://www.nilsonreport.com/publication_newsletter_archive_issue.php?issue=1035 /

8. COF: Lines of Business

9. COF: Lines of Business (contd..) $B Loan Portfolio Composition $4 $80 $126 $136 $206 $197 Source : COF Annual Reports

10. Industry Review Primary Activities: Providing credit through credit cards Industry participants make money by collecting interest on debt and fees from card owners and merchants. Major Products & Services: ◦ Cardholder Fees (34.2%) ◦ Interchange Fees (34.3%) ◦ Interest Income (31.5%) Major Markets: ◦ Young Adults & College Students (15%) ◦ Adults aged 26 to 60 (59%) ◦ Business & Adults aged 60+ (26%) Source: Carusotto, Daniel. "Credit Card Issuing in the US: Market Research Report." Credit Card Issuing in the US Market Research. IBISWORLD, 1 Oct. 2014. Web. 18 Nov. 2014..

11. Industry Review (Cont’d) The economy is stable Spend money & paying off debt The industry makes solid returns The economy is struggling Stop paying some bills Credit card companies suffer Higher unemployment, more bankruptcies Consumers could not pay off debt obligations Industry set aside a portion of revenue to cover losses, directly impact profit margins Collapse of several large financial institutions Hurt industry revenue and slow the profit growth Source: Carusotto, Daniel. "Credit Card Issuing in the US: Market Research Report." Credit Card Issuing in the US Market Research. IBISWORLD, 1 Oct. 2014. Web. 18 Nov. 2014..

12. Government Regulation & Legislation Bank Holding Company Act (1956) Truth in Lending Act (1968) & the Schumer Box The Credit Card Accountability Responsibility and Disclosure (CARD) Act (2009) The Dodd-Frank Act (2010) Basel III source: Carusotto, Daniel. "Credit Card Issuing in the US: Market Research Report." Credit Card Issuing in the US Market Research. IBISWORLD, 1 Oct. 2014. Web. 18 Nov. 2014..

13. Major Competitors American Express Co. (20.2%) Bank of America Corp. (17.5%) JPMorgan Chase (16.9%) Citigroup Inc. (9.4%) Discover Financial Service Inc. (7.2%) (Capital One Corp. 14.2%) HHI=1554.9 ∈ (1500, 2500) CR4=68.8 ∈ (50, ∝ ) Moderately Concentrated Market & Tight Oligopoly Industry Source: Carusotto, Daniel. "Credit Card Issuing in the US: Market Research Report." Credit Card Issuing in the US Market Research. IBISWORLD, 1 Oct. 2014. Web. 18 Nov. 2014..

14. Management Richard D. Fairbank, Founder, Chairman and CEO ◦ Founding Belief: the power of information, technology, testing and great people could be combined to bring highly customized financial products directly to customers. (1988) ◦ Recognized for his community and industry leadership ◦ Used to serve MasterCard International’s Global Board of Directors and Chairman of MasterCard’s U.S. Region Board Company Culture : ◦ Two Key Values:  Excellence  Do the Right Thing ◦ Widely recognized for entrepreneurial culture, progressive work place, and community engagement Risk Management: “Three Lines of Defense” risk framework Source: "Leadership." Capital One. Capital One. Web. 18 Nov. 2014..

15. Total US Debt Source : Federal Reserve Bank of New York (http://www.newyorkfed.org/householdcredit/2014-q1/)

16. Unemployment Rate Source : Bureau of Labor Statistics (http://data.bls.gov/timeseries/LNS14000000) %

17. Credit Card Delinquency Rates Source : Card Hub (http://www.cardhub.com/edu/credit-card-charge-off-delinquency-statistics)

18. Interest Rates Source : Trading Economics (http://www.tradingeconomics.com/united-states/interest-rate)

19. Consumer Confidence & Spending Source : Trading Economics (http://www.tradingeconomics.com/united-states/consumer-spending; http://www.tradingeconomics.com/united-states/consumer-confidence) Consumer Confidence Consumer Spending

20. COF : Strategic Analysis

21. Porter’s Five Forces Industry Rivalry (High) Large no. of banks offering competitive products High volatility in market share Banks need to respond quickly to integrate rapidly evolving technology into financial products Industry Rivalry (High) Large no. of banks offering competitive products High volatility in market share Banks need to respond quickly to integrate rapidly evolving technology into financial products Bargaining Power of Borrowers (Medium) Competitor banks continuously try to woo customers by offering promotional offers Customers can shop for best product/pricing very easily Bargaining Power of Borrowers (Medium) Competitor banks continuously try to woo customers by offering promotional offers Customers can shop for best product/pricing very easily Bargaining Power of Suppliers (Low) Bigger banks have significant leverage due to their bigger asset bases Fed controlled interest rates are at a historically low level Bargaining Power of Suppliers (Low) Bigger banks have significant leverage due to their bigger asset bases Fed controlled interest rates are at a historically low level Threat of new Entrants (Low) Only 2 new banks started in last 3 years Extensive capital, legal and regulatory requirements for a new entrant Dominant position of existing players Difficult to grow quickly in a highly competitive market Threat of new Entrants (Low) Only 2 new banks started in last 3 years Extensive capital, legal and regulatory requirements for a new entrant Dominant position of existing players Difficult to grow quickly in a highly competitive market Threat of Substitutes (High) Threat from newer players like credit unions, technology companies and growth in cash/debit card payments Difficult to achieve product differentiation Threat of Substitutes (High) Threat from newer players like credit unions, technology companies and growth in cash/debit card payments Difficult to achieve product differentiation

22. COF : SWOT S trengths W eaknesses Growth potential in Private Label credit card space, post HSBC acquisition Expansion of international business in UK and Canada Expand in mortgage and home equity business Growth potential in Private Label credit card space, post HSBC acquisition Expansion of international business in UK and Canada Expand in mortgage and home equity business O pportunities Loss rates and interest rates are at all time lows, and are bound to go up Further regulations in Credit Cards Volatility in financial markets Privacy and customer data breach Loss rates and interest rates are at all time lows, and are bound to go up Further regulations in Credit Cards Volatility in financial markets Privacy and customer data breach T hreats Strong returns across multiple years Full spectrum card lender with diversification in auto and home loans Proven track record of successfully managing credit risk in downturn Virtual monopoly in Subprime card market Resilient performance in stress tests Known for data-driven analytics Strong returns across multiple years Full spectrum card lender with diversification in auto and home loans Proven track record of successfully managing credit risk in downturn Virtual monopoly in Subprime card market Resilient performance in stress tests Known for data-driven analytics S trengths Big Subprime lending results in negative market perception Lack of geographical diversification – based primarily in one market, U.S. Lesser brand recognition in Prime and Super Prime space Significantly lower card satisfaction rates Big Subprime lending results in negative market perception Lack of geographical diversification – based primarily in one market, U.S. Lesser brand recognition in Prime and Super Prime space Significantly lower card satisfaction rates W eaknesses

23. Ratio Analysis Multiples Analysis 20092010201120122013 P/Tangible Book 1.41.61.31.41.6 P/E 29.96.46.09.310.1 P/Book 0.7 0.81.1 Ratio Analysis Tier 1 Ratio 13.8% 11.6% 12.0% 11.3% 12.6% Tier 2 Ratio 4.0% 5.2% 2.9% 2.2% 2.1% Leverage Ratio 10.3% 8.1% 10.1% 8.7% 10.1% Source: Bloomberg and Capital IQ

24. Comparable Analysis Company NameP/Diluted EPS Before Extra LTM - Latest P/TangBV LTM - Latest NTM Forward P/EP/Book Value Per Share Bank of America Corporation (NYSE:BAC)42.9x1.2x11.99x0.82x American Express Company (NYSE:AXP)16.9x4.7x15.47x4.64x Citigroup Inc. (NYSE:C)18.7x0.9x10.25x0.80x JPMorgan Chase & Co. (NYSE:JPM)11.2x1.4x10.25x1.07x Discover Financial Services (NYSE:DFS)12.4x2.9x12.08x2.76x Capital One Financial Corporation (NYSE:COF)11.0x1.6x10.30x1.04x Summary StatisticsP/Diluted EPS Before Extra LTM - Latest P/TangBV LTM - Latest NTM Forward P/EP/Book Value Per Share High42.9x4.7x15.47x4.64x Low11.2x0.9x10.25x0.80x Mean20.4x2.2x12.01x2.02x Median16.9x1.4x11.99x1.07x Implied COF PriceP/Diluted EPS Before Extra LTM - Latest P/TangBV LTM - Latest NTM Forward P/EP/Book Value Per Share High 317.95238.53122.85365.84 Low 82.8347.4081.3562.69 Mean 169.28117.6198.68167.86 Median 138.1792.2595.25121.45 Multiples RatiosValueWeightsImplied Value P/Diluted EPS Before Extra LTM - Latest 138.1710%13.81717962 P/TangBV LTM - Latest 92.2540%36.89924547 NTM Forward P/E (Capital IQ) 95.2530%28.57547938 P/Book Value Per Share 121.4520%24.28975154 Weighted Average value $ 103.58 Source: Capital IQ

25. Technical Analysis (3 years) Source: Bloomberg

26. Financial Valuation 1)Forecast Assets, Debt(liabilities) and Equity growth based on company’s historical data and macro economy 2)Calculate Interest Income, Non-Interest Income, Interest Expense and Non- Interest Expense 3)Forecast and calculate Net Income for common-shareholders 4)Calculate EPS 5)Calculate and Forecast Dividend per share 6)Calculate the Payout Ratio 7)Calculate WACC 8)Select terminal Growth Rate 9)Discount Dividend per share of Future to calculate the Present Value using Dividends Discount Method (DDM) 10) Compare with other methods

27. Weighted Average Cost of Capital(WACC)

28. Dividend Discount Method(DDM) Valuation

29. Institutional Investors/Analysts’ Recommendation FirmAnalystActionRecommendationTgt Px Buckingham Research GroupDavid HochstimMbuy93 Rafferty Capital MarketsRichard X Bove SrMbuy107 Deutsche BankDavid HoNbuy92 NomuraBill CarcacheDneutral86 Sanford C. Bernstein & CoKevin St PierreMoutperform92 Evercore ISIBradley BallMbuy94 Morningstar, IncDaniel WernerMhold Argus Research CorpStephen BiggarMhold BarclaysJason M GoldbergMoverweight93 Edward JonesJim ShanahanMbuy Ameriprise Advisor Services, IncLori WilkingMbuy Oppenheimer & CoBen ChittendenMoutperform94 William Blair & CoRobert P NapoliMmarket perform UBSMatthew HowlettMbuy93 Credit SuisseMoshe A OrenbuchMneutral90 Goldman SachsRyan M. NashMbuy/attractive92 RBC Capital MarketsJason ArnoldMoutperform86 JPMorganRichard Shane JrMoverweight95 Janney Montgomery Scott LLCSameer GokhaleMneutral86 Robert W. Baird & CoDavid A GeorgeMoutperform90 FBR Capital MarketsScott ValentinMoutperform94 Sandler O'Neill & Partners, LPChristopher R DonatMhold85 Wells Fargo SecuritiesMatthew H BurnellMoutperform Guggenheim Securities LLCDavid W DarstMbuy95 Portales PartnersWilliam H RyanMsector perform Susquehanna Financial GroupJames E FriedmanMneutral85 EVA DimensionsNeil FonsecaDunderweight Drexel Hamilton LLCDavid B HilderMbuy92 Keefe, Bruyette & WoodsSanjay SakhraniMoutperform100 Average $ 93.22 Source: Bloomberg

30. Recommendation Current Price: $81.14 (11/17/2014) Implied Intrinsic Value: $ 92.86

31. Credit Card Companies : Stock Prices pre- and post-recession Change in Stock Prices for leading Card Issuers AMEX CHASE COF KBW Bank Index Bank of America CITI Source : Google Finance

32. Credit Card Outstanding $B Source : Federal Reserve (http://www.federalreserve.gov/releases/g19/HIST/cc_hist_r_levels.html)