Capital One Forced to Increase Reserves

Capital One Financial Corp. shares plunged, leading other credit card stocks lower, after the fifth-largest U.S. issuer of Visa and MasterCard said regulators required it to increase reserves for loan losses.

Capital One shares fell $20.12, or 40%, to $30.48 on the NYSE.

Federal regulators are scrutinizing lenders that expanded during the economic growth of the 1990s by going after customers with bad credit backgrounds and charging rates of 20% or higher.

Some investors said they were surprised that Capital One, which has had the lowest default rate among the top 10 U.S. credit card issuers since a recession took hold early last year, was forced to boost reserves.

Regulators said they were concerned Capital One might be growing too fast. The Falls Church, Va.-based company increased loans at an annual rate of 35% in the first six months of this year.