Capital One at Morgan Stanley Conference: Strategic Moves and AI Focus

On Tuesday, 10 June 2025, Capital One Financial Corporation (NYSE:COF) presented its strategic vision at the Morgan Stanley US Financials Conference 2025. The company discussed its acquisition of Discover and its implications for growth and integration, while also highlighting the challenges and opportunities in the consumer and lending environment. Capital One’s CEO Rich Fairbank emphasized the importance of AI and technology transformation in shaping the company’s future.

Key Takeaways

• Capital One is integrating Discover to enhance its credit card business and national bank efforts.
• The company is cautiously navigating the auto finance sector amid fluctuating vehicle values.
• Capital One plans to return to a more active capital return strategy after regulatory reviews.
• AI and technology are central to Capital One’s strategy for real-time data analysis and customer solutions.

Discover Acquisition & Strategy

Capital One’s acquisition of Discover is seen as a unique opportunity to boost its credit card business by leveraging Discover’s customer base and network. The integration will involve transitioning Discover onto Capital One’s modern technology platforms. This move aims to enhance Capital One’s national bank-building efforts and expand its reach in the payments value chain. Discover will be repositioned as a product brand within Capital One, maintaining its flagship offerings like the 5% rotating categories card.

Consumer & Lending Environment

During the conference, Capital One executives noted the strong health of consumers, with unemployment and wage growth in favorable positions. Despite charge-offs exceeding normal levels, credit metrics such as delinquencies are improving. In auto finance, Capital One is taking a cautious approach due to inflated vehicle values but is ready to explore growth opportunities as margins stabilize.

Capital Allocation & Financial Health

Capital One’s capital planning includes a long-term CET1 target of 11%. The company is preparing for a more active capital return strategy, contingent on stress test results and regulatory feedback. The recent CCAR submission considered both standalone and combined scenarios with Discover, reflecting a comprehensive approach to capital management.

AI and Technology

AI and technology transformation are pivotal to Capital One’s strategy. The company is implementing generative AI across its operations to enhance efficiency and deliver personalized customer solutions. Capital One is transitioning its monitoring processes to be automated and real-time, using AI to detect issues and identify root causes effectively.

In conclusion, Capital One’s strategic initiatives at the Morgan Stanley US Financials Conference 2025 underscore its commitment to growth through strategic acquisitions, careful capital management, and technological innovation. For a deeper dive, refer to the full transcript below.

Full transcript - Morgan Stanley US Financials Conference 2025:

Unidentified speaker, Moderator, Morgan Stanley: Alright, everybody. We’re gonna get started. Before I get started, I’m just gonna read some disclosures. For important disclosures, see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosure. Taking of photographs and use of recording device is not allowed.

If you have any questions, please reach out to your Morgan Stanley sales representative. So very excited to have Rich Fairbank and Jeff Norris from Capital One join us today. Let’s get it underway. So big question on everybody’s mind, Rich. You just closed the Discover deal three weeks ago.

Now that you’ve been able to finally dig in, are you as excited as you were when you announced the deal about sixteen months ago? And maybe you can give us an update on the strategic vision of the combined companies and how that looks as you sit here today.

Rich Fairbank, CEO, Capital One: Okay. Thank you, Jeff. Thanks everybody for being here in the room and on the webcast today. So yes, we’re, very excited. It was a it was a long journey to get here, but, to get the deal approval and to get it closed is a very big, moment for, for Capital One and and for our investors.

So we’re only a few weeks into literally having, you know, being inside the company. But I and so I just want to say that our enthusiasm continues. I’m really struck even though all along the way we’ve learned more really where we were at the time of the deal announcement and the vision that we expressed is very much where we are today and the level of enthusiasm in the sense of possibility. And also, by the way, of course, some of the challenges along the way in pulling everything off is very consistent with our expectations, and we’re excited. So just to talk a little bit about the opportunity here.

You know, it’s interesting, and it’s ironic to say what I’m gonna say, when we’re celebrating, closing the biggest, bank deal since the global financial crisis. But Capital One is really not on a quest to go out and buy lots of banks. The way most banks grow is to buy other banks. We had a period in our life where we bought banks because we wanted to transform the balance sheet of Capital One away from capital markets funding to FDIC insured deposits. But that phase is over.

And the Discover acquisition really is a unique opportunity for us to continue in what I would much more describe as an organic growth path for Capital One. And the Discover opportunity is so unique because we’ll start with kind of the obvious things. The ability to get a lot more scale in a scale sensitive business like credit cards that is certainly very helpful. And on the credit card side, the Discover has a beloved customer franchise. We always from afar knew that and admired that.

It’s very complementary to our credit card business. So we’re basically going to take what they have done so well, and it’ll fit very nicely into the broad set of things that I think we do well at Capital One. They have a student business. We’ve always admired that one. So we’re going to just picture we’re going to take what they do well and try to very much continue and invest in those things.

There’s the obvious ability to generate synergy and to make an integration work better by virtue of the fact that we can move onto our modern technology platforms and so on. So that’s going to be a nice opportunity in this deal. This also allows us to continue to get thrust in our building of national bank. Bringing the network in, bringing some of Discover’s own banking business in just adds thrust to a very important part of our journey, which is to organically build a national bank. Something that’s different from what direct banks do and different from branch on the corner banks, which the rest of the banking industry has.

So that’s very beneficial. And finally, the network. Being able to have this rare and valuable asset of a network enables several things to happen. of all, if you think about Capital One, what is our business? We’re basically a very large payments company.

And it’s always been striking to me that as a very large payments company there’s one part of the value chain where we don’t really participate. Obviously that’s in the network. To be able to vertically integrate allows us to capture the economics of vertical integration in a business where every basis point really, really matters. It allows us to go direct to take our huge customer franchise and go direct to merchants. Merchants want to drive more volume.

Our customers want better deals. There is a tremendous opportunity to leverage data and merchant relationships, a strategy we’ve already had independent of this deal. But this thing accelerates that in the direct to merchant strategy. Network also, owning a network also very much helps us build some insurance against one of the risks that we face, which is the reliance on other networks and some of the pressures those networks are under. It’s hard to quantify that benefit to be able to have some insurance and resilience against some of the pressures they’re under and therefore indirectly we would be under is also part of this.

So at the end of the day, there’s a lot to like here. It’s a unique acquisition. And I think it will change the future prospects of our company.

Unidentified speaker, Moderator, Morgan Stanley: So still excited about the deal. Synergies are still on track here. Any sort of early learnings as you looked under the hood here? And, as it relates to your network aspirations, the debit side makes a lot of sense, but you’ve also said you want to be more surgical on the credit card and international side. So what’s your strategic approach going to look like on the international side?

What’s the timeline to think about? And how much investment spend? Or how should we be thinking about the spend that’s required to do that?

Rich Fairbank, CEO, Capital One: Yeah. So the great thing is that we are able to have a network which is a very rare thing for a bank to own. The challenge is that in an industry, the network business is very, very scale driven business. And of the major networks, major card networks, Discover is by far the smallest. So they have done an amazing job in their subscale position building acceptance, virtually universal acceptance domestically.

And they’ve gone a long way internationally where they have really nice baseline acceptance. But what’s very clear is there is quite a gap between where they are and where we feel our traveling customers would really expect for us to seriously look at putting you know the volume of people that do a lot of international travel on a network like this. So what we announced in our deal is we’re going to move our entire debit card business and a small portion of our credit card business, dollars 175,000,000,000 in total, in effectively moving not very heavy internationally traveling component and get the flywheel turning, get more scale in there. But when we look at whatever we want to do down the road with the network, all lead to we’ve got to build more international acceptance. And so that’s what we’re going to do.

Now when I compare it to a lot of quests we’ve done over the years at Capital One, sometimes we set out on quests that no other company has done. And it’s a bit of a lonely journey. And you say maybe there’s a reason others haven’t done this. But in this case, the playbook is very clear. Discover already has built from their subscale position good baseline international acceptance.

It’s really a combination. It’s really through partnerships, blocking and tackling, boots on the ground, partnerships with merchant acquirers, other international networks, financial institutions in various countries who might want to issue a Discover card, and finally, the big individual merchants themselves. We see the playbook. We see what Discover has done. The difference between their approach and our approach is now with more scale and bigger aspirations, we’re going to really lean into taking that international acceptance.

And we’re not going to rest until we get to a place where on a you know it when you see it basis, we are where people are really going to be shopping internationally. It’s not a number. I can’t tell you exactly what that it is. But that’s what we’re driving toward. And then as we get there, then we’re also going to lean into brand advertising, network brand advertising with a real sort of global feel to it and a top of the market feel.

And I think that will be the next phase of the transformation of this opportunity. All along the way, by the way, I want to make clear, Visa and MasterCard will be as far out as we can see very important partners with us. And a lot of our customers are doing great things on that network. But we’re going to build the capabilities of this one so that over time we have the chance to move more volume.

Unidentified speaker, Moderator, Morgan Stanley: And as it relates to moving away from the network side, as it relates to the card issuance side, You talked about wanting to retain Discover as a brand here. But how are you thinking about potentially repositioning that that product, that marketing, the go to market there? How do we think about the overlap between your existing base?

Rich Fairbank, CEO, Capital One: So we, for years and years, of course, have studied the national brand power of the major financial institutions in The United States. It’s really striking how few banks or basically how few banking institutions really have national brands. What a luxury to be in the position of Capital One that is there and to be able to bring into the family another player who is there. Discover has very, very high awareness. They have customer their own customers have a tremendous reverence for Discover.

And so we have two really strong brands. What a luxury. Now one thing has to obviously change. And that is that Discover is not going to continue to be the brand of a corporation. But it will be a very important brand for us.

But what we’re going to do is move from a brand of a corporation to something that has two aspects to it. It will always, as far out as we can see, be a network brand. And we’re going to be really branding this as the Discover Network. Not just Discover, but the Discover Network. So that there’s a little bit of separation between maybe a Discover branded card.

But anyway, in the meantime then on the side, Discover will move to be a product brand. Picture product brands at Capital One Venture. How much we’ve invested in Venture, and then Venture X, and all of this. So if you picture it as that and sort of how much Capital One is leaned into the building of the Venture brand, we’re bringing this amazing brand name Discover. And we will build it as a product brand.

And you can think of it as just, you know, there’s Venture. There’s Quicksilver kind of thing. There’s Spark and a lot of leaning into this amazing product brand. Along the way we will continue Discover’s flagship product, their 5% rotating categories product. And we will continue things like their student credit card activities and a lot of other good things they do under that brand.

And one area you’ve been able to make

Unidentified speaker, Moderator, Morgan Stanley: strong inroads in recently is premium card, top of the market credit card. How do you do so well compared to the competition making inroads there? And how does owning a network maybe accelerate that journey from here?

Rich Fairbank, CEO, Capital One: I love that question because when I think about all the quests of Capital One including the founding of the company in the place, there’s a common element to all of it. So Jeff, let me just start with the common element, which is really standing back and saying where is the world going and where do we think winning is in terms of the best industry structure, winning with customers, and winning economically. And from the founding idea of the company all the way to today, all of our quests are working backwards from identifying those unique places where we really think winning is. And the good news, bad news is kind of like we say, great news. We figured out where winning is.

Well, what’s the bad news? Well, it’s way over there. But what we’ve done with Capital One over the years is being very careful about what hills we’re going to take. We then declare we’re going to take them. And then we know it is a long journey to get there, usually measured in more than a decade.

In some ways, some of these are lifelong journeys. But we are very careful with the strategy. And then we lean in to do what it takes to get there. The quest to win at the top of the market is no exception to that. We believe, and I bet you every person here, who, many of you are the kind of customers, exactly that we’re talking about, it’s an amazing place, to be with incredibly attractive customers, very low losses, very low attrition, and a gateway into broader relationships and very good economics.

So it’s easy to see how you’d want to get there, but want to be there. But how does one get there? What we felt, and we watched a lot of attempts by other banks over the years to try to win at the top of the market. And what we saw is it’s not about just putting some ads on TV. It’s not about cobbling a few vendor related products together and coming out and declaring great things.

It’s about systematically building the end to end capabilities to truly win in a differentiated way against very, very successful players at the top of the market. So including high end servicing experiences, digital experiences, then of course the product offerings themselves where we put a lot of work into creating, and in Capital One’s case, really quite differentiated product offerings versus what the competitors have to offer. But it doesn’t stop there. Then building the travel ecosystem to cause people not to just purchase tickets on your cards, but to beat a path to our travel ecosystem as a gateway into their travel experiences. We reward them for doing that.

But that’s a whole critical part of the equation. Then there are lounges. Let’s pause and talk about lounges for a I’m sure virtually everybody here in the room has intimate experiences with lounges. Lounges, it’s very clear. They’re a very important part of what matters to high end customers.

And so Capital One is on a quest to build out our own lounges and, of course, partner with other lounge networks. It also involves building high end. It’s not just

Jeff Norris, CFO, Capital One: about products,

Rich Fairbank, CEO, Capital One: you know, having a great product and even in lounges, being able to provide access to things that people can’t normally get into. Obviously, Capital One has the Taylor Swift relationship, for example. But creating unique experiences and access, that’s all part of it. And then finally, on top of all of that is building a brand. So I savor that only because I don’t think there’s a shortcut to winning at the top of the market.

In 2010, we declared we’re going to go to the top of the market. And in 2010, we launched our venture product. If you look at Capital One’s purchase volume, historically you can almost go bowling on that purchase volume trajectory until 2010. And since then, it’s been going straight up over this period of time. But it’s a quest that is sustained, involving a lot of investment.

But along the way we validate that it’s working. We validate the economics. And what we found is that this path to making sure everything we do is truly a differentiated great experience, we’ve been rewarded with a lot of success. And we see so much opportunity ahead of us.

Unidentified speaker, Moderator, Morgan Stanley: That’s great. I mean, I think we could spend the entire time talking about the deal here and the benefits, but maybe let’s switch a little bit and, focus on the consumer here. So about a year and a half ago, you were one of the to call out stabilizing consumer credit trends. More recently, this trend has turned into outright improvement. We’ve heard more recently of some uncertainty out there in the confidence data.

You have tariffs out there. Can you maybe just tie it all together and talk about what you’re seeing from the consumer? So starting with sort

Rich Fairbank, CEO, Capital One: of the health of the consumer, I think look, there’s noise all over the place. Know, who knows exactly where tariffs and all these things are going to go. But if you just separate what you read in the news for a minute just with sort of what we observe in terms of the economy itself, unemployment is in a very strong place. Job growth, wage, real wage growth, it’s in a good place. Consumer indebtedness, consumer debt burden is very consistent with pre pandemic and at a good place relative to historical levels.

The consumer is in a very strong place. We then look at our own metrics. And we flagged for a long time that the period of amazingly low charge offs was going to be followed by credit normalization that wouldn’t just necessarily get back to sort of where it was, but would likely go above that because you have deferred charge offs from the great government stimulus and everything that at some point were going to play out. I think what we’re seeing what we have seen in the normalization of credit that it is shot kind of past the sort of credit card normal levels in a non surprising way because of the deferred charge off effect. But since the fourth quarter of last year with respect to Capital One we have seen our credit metrics most importantly headlined by our delinquencies actually on a seasonally adjusted basis getting steadily better.

And we see that in other metrics. It’s very clear that there is a general trend of things settling out. And what we’re probably seeing is some running the course of those delayed charge offs that were playing out. So we continue to see good things, by the way, despite all the noise out there and the tariff news and everything. Even when we look at the most, the very latest daily data on things like spending data or anything related to sort of the consumer behavior.

We just don’t see an effect. It’s as if our consumers aren’t really reading the same newspapers that we are. And so I’m cautiously optimistic about what I see.

Unidentified speaker, Moderator, Morgan Stanley: One other topic on tariffs is auto and used car pricing. So you talked last quarter about a pull forward in auto purchases here as consumers are trying to get ahead of that, but that’s also a meaningful benefit to your back book. So how do we balance that against maybe the affordability impacts and the forward look and how that is driving your decision to lean in here?

Rich Fairbank, CEO, Capital One: Yeah. So Jeff, great question. Let’s just pull up a little bit and I want to just talk about how we have viewed the auto finance business over the last three or four years. So of all, in both credit cards and auto lending, basically in all consumer lending, we flagged years ago that while charge offs, while it’s amazing how low charge offs are in the industry across every product, we really need to be careful that not only will things kind of normalize, but we could all be fooling ourselves with the data that we’re looking at. Because when we are modeling consumer credit and we’re building all these highly sophisticated credit scores, we’re looking at consumers who had received this massive injection of government stimulus, forbearance on financial products, and various things.

And so we declared we think there is a very significant grade inflation going on that requires intervention to intervene on our models to take that great inflation away. That caused Capital One in both credit cards and auto some years ago, a few years ago, to pull back relative to the industry on certain things. We’ve since then, I think, seen the benefits in Capital One’s credit metrics in some ways have sort of turned and maybe moved a little more positive than others. We’re seeing the delayed benefits of those choices. If we look at the so that’s cross card in auto.

In the auto business there are several things that have really gone on that have driven our pulling back and are now informing our leaning in. So in addition to the credit score inflation that caused us to be very cautious a few years ago, the margins were compressing because of interest rates and the difficulty of passing it on through into lending pricing. And to your specific question, Jeff, vehicle pricing continued to be high. And so we worried about that. We pulled back.

Now things are settling out. I’ll come back to vehicle prices in a The margins in the business have inflation has more made its way into the pricing and everything. But now you have this thing that we really got to watch out for which is inflated vehicle values. How does that impact Capital One? Our existing book of business is benefited by inflated vehicle values because consumers have more equity in their car.

And if we need to repossess the car it has more value. But on the front book of new originations, there are several things to really kind of watch out for. A higher vehicle price, especially if we feel it’s inflated relative to maybe what it should be, that means the consumer is going to have higher payments. It’s already in the context of higher interest rates. And the car has some risk of value decline over time.

So we incorporate all of these things into our decision making. When you net them all out, we who pulled back a few years ago are actually net net, despite what I just said, are more in leaning in mode. And so that when you see some of the recent numbers that we posted in the auto business, we actually see some nice growth opportunities here. But we’ll have to keep an eye out especially on those vehicle values.

Unidentified speaker, Moderator, Morgan Stanley: Okay, great. Maybe we can get Jeff involved a little bit here. So stress tests are coming out in a few weeks. Can you talk a little bit more about the submission you’ve made? Was that pro form a for the deal?

And how should we be thinking about the opportunity to return capital? Is your right target capital level 11% CET1? What’s the timeline, etcetera, to get down there?

Jeff Norris, CFO, Capital One: Sure. A couple of things. Our most recent CCAR submission was done as of the end of ’twenty four. So we were still a standalone company. We did provide a scenario as a combined company using publicly available data on Discover.

And we’ll have to see what the Fed does in terms of processing that. But whatever they’re going to do, we’ll get our grade, if you will, our answer in June, I think just like everybody else. When we got regulatory approval for the deal, that sort of formally ended the period of time where we needed to seek prior approval for all our capital choices. And so the thing that I think needs to get done to unlock a different view of capital is what is underway right now, we’re doing an internal bottoms up stress test separate a little bit from the CCAR process to sort of come to our own view kind of on an economic basis where we think our capital targets need to be over the long term, which has traditionally been declared at about an 11% CET1. And importantly, over the sort of near to intermediate term, while we’ve had a deal pending, we felt it prudent to operate above that long term target and have a fairly measured pace of share repurchases as a result of that.

And we’ve been pretty clear that we’re probably going to want to have some buffer above that while the integration is still going on and there’s lots of moving pieces. However, we’re going to sometime in the half of this year have completed our internal look. We’ll have received our new stress capital buffer from the Fed. And I think when we found ourselves in a position to sort of make our own capital decisions that we see prudent and we’ve had a lot of capital, our actions would say that we behave in a way that recognizes the importance of capital return as an important part of how shareholders get paid. And I think sometime in the next couple of quarters, half of the year, we’ll be finding our way to that position.

Now it’s not going to be a race to the target. We’ll always manage capital prudently, but I think we’ll be in a pretty good capital position.

Unidentified speaker, Moderator, Morgan Stanley: Okay. Great. Very clear. And Rich, one last question for you. Technology AI, I know this is near and dear to your heart.

So how important is AI as a part of the Capital One culture? What use cases of AI have you implemented so far internally? Can you give us any examples, you know, of how your advanced tech is giving you, you know, an edge in real time credit monitoring, things like that?

Rich Fairbank, CEO, Capital One: Well, you know that this is near and dear to my heart. So if we pull up on AI and everybody’s talking about AI, it’s the rage of the age. I think that there’s going to be sort of two very different impacts of AI in the context of companies in America and banks would follow that same pattern. The transformation, which is more of a horizontal transformation across all companies and all industries, is a transformation in how work is done. And this will mostly be driven by outside vendor products.

And companies will adopt them. The wave is they will adopt them and just bring them in. The wave will be taking some of their own internal data and exposing these models to that so that it can be more customized for how work is done there. But this is very clearly a revolution that’s going to happen across language related activities driven by sort of chat bots, workplace productivity. For example, at Capital One we’re just implementing across through all of our sort of workplace tools, external capabilities with generative AI and stuff like that.

A very big impact across industries is going to be in software development. Capital One is way down that path of providing leverage for our software developers through these kind of tools. Obviously things like graphics and video related things. And there’s sort of a whole transformation there. All of that is a transformation in how work is done.

The more modern companies will be able to get more leverage out of it than those that are not. But this will happen horizontally. There’s another huge transformation that will happen in business within industries. And ultimately transform how industries work. But that’s going to not be driven mostly by external tools.

Because it so much really gets to the heart of how a company actually works on the inside. So in 2013, Capital One, you know, we looked at where the whole world is going. We really watched the collective impact of the cloud, smartphone, and the AI machine learning slash AI revolution that was really enabled by the cloud. And we saw that thing I call the triple revolution was transforming everything about where winning was. And so we declared in 2013 our technology transformation.

And two things about that is one, it was going to be a transformation from the bottom of the tech stack up, because it would take a lot of years because we got to rebuild the company in fully modern technology. And what are we working backwards from? We’re working backwards from where winning is going to be in the world, which is all about big data and machine learningAI in real time, bringing customized solutions to individuals again their context. That’s like that’s where the world’s going. That’s how every industry is being transformed, one industry at a time.

In order to get there, modern external tools are not going to allow companies, enable companies to get there. Because it’s about building a company from the bottom of the tech stack up and how the company works, the ecosystem works, the talent, the tech talent, the AI talent, the data ecosystem, how every application on which the company sits, how that is built, being in the cloud, the whole thing. That is what I call building a modern tech company. On that map, everything we’ve been building is working backwards from this real time AI destination. So along comes AI.

We didn’t predict AI would necessarily come. But it’s just the next evolution in the journey. And just to wrap it up, to just give you a window of it’s not just transforming customer experiences. But also it will transform how a bank or a company works on the inside. Take one example, monitoring.

How do we monitor today? You don’t hear CEOs coming up talking about, I’m going to tell you all about monitoring. But by the way, monitoring matters massively. How do we monitor? How do companies monitor today?

They do it manually with a sample on a batch basis. And they use it to detect is there an issue. What’s a real time modern AI driven solution for monitoring? It’s automated. It’s full file.

It’s real time. And it’s diagnostic. Not only there is an issue, but I’ll tell you the root cause. That’s just a little example of how inside a company, never to be seen by consumers and not a consumer experience thing, inside a company you can transform how a company works. But the only way to get there is build the company with a modern tech stack where everything works backwards from this destination.

Sorry. I ran a little over time. I’m so sorry. Well, Rich, we could

Unidentified speaker, Moderator, Morgan Stanley: talk all day about AI, but I think we have to end it here. So thank you for joining us, Rich and Jeff. Appreciate it. Thank you.

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