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Capital One Financial stock slides after Walmart sues to end credit card pact

Capital One Financial (NYSE:COF) stock dropped 3.3% in Monday premarket trading after Walmart (NYSE:WMT) filed a lawsuit seeking to end the companies’ credit card contract.

Capital One (COF) won the Walmart card deal in 2018, after the retailer decided to not renew its credit card deal with Synchrony Financial (SYF).

The suit, filed last week in the Southern District of New York, alleges that Capital One (COF) didn’t live up to certain terms of their pact. Specifically, the giant retailer accused the credit card issuer of falling short on its customer care practices, such as delivering replacement cards to customers within five days and promptly posting transaction and payment information to customers’ accounts, according to media reports.

As of Dec. 31, 2022, the card program consisted of $8.3B in ending outstanding loan balances and the allowance for credit losses related to the card program portfolio was ~$314M. For 2022, the card program produced ~$214M in net income, Capital One said in a filing.

If the court allows Walmart (WMT) to end the card program early, Capital One (COF) expects that resulting transfer of its card portfolio to a new issuer to occur no earlier than January 2025.

The credit card partnership agreement requires that Walmart (WMT) or one or more new card issuers pay to Capital One (COF) a purchase price that is equal to par for the private label accounts and equal to fair market value for the co-branded accounts, Capital One said. COF is entitled to retain any premium above 1.5% of the par value of the co-branded accounts upon sale, it added.