Capital One Outsourcing Expose
Capital One Outsourcing Expose
Date: Tuesday, April 27, 2004 10:34 AM
JOB DESTRUCTION NEWSLETTER
April 27, 2004 - No. 994
Many people assumed that after Capital One's problem with offshoring
they would have less enthusiasm for compromising the personal
information contained on credit cards.
US credit card company Capital One has torn up its contract
with Indian call centre company Wipro Spectramind. Action
was taken after Capital One found out that Wipro staff had
made unauthorised credit offers, gifts and club membership
to customers.
This is a very clear statement that Capital One has no intention of
slowing down their offshoring to India. Their CEO makes it even more
clear.
Capital One denies that it will pull out of India altogether.
Rich Fairbank's Meat Cleaver
CEO Rich Fairbank is rather blunt in this company memo about what is
going to happen at Capital One. He intends to reduce operating costs by
cutting salaries and benefits, and outsourcing whatever he can.
Our operating costs are primarily made up of the compensation
and benefits we provide to our associates. In order to make
substantial headway on operating costs, we will need to reduce
our internal workforce over time through a combination of
attrition, outsourcing and job reductions.
Fairbank must be one of those self-proclaimed compassionate
conservatives. His sensitivity might include gift wrapped pink-slips or
perhaps Rich will give all those downsized employees a big hug and a
kiss as they are ushered out the back door.
As we take these steps, we must demonstrate compassion
and sensitivity.
It's not known whether Capital One is using Wipro, but they are still
going to outsource to India. Credit cards and IT workers will be the
first to go to India.
Bye! Bye! American Jobs, and Hello Cheap Labor!
Card and IT expect to reduce their costs primarily through the
use of outsourcing, along with efficiency gains and targeted
job reductions. These groups have been on the outsourcing path
for a while. They must continue to look for the right outsourcing
opportunities where the cost difference is compelling or outside
suppliers have greater scale or specialized expertise.
Rich will get much richer after he executes those compassionate firings
and he will be rewarded with a big fat golden parachute for cutting
labor costs. Trading human capital is what this company is really
about, and the executives are being paid handsomely for their devotion
to American job destruction.
Senior management at the go-go credit card company obtained a big
slug of stock options by surpassing an earnings-per-share target
in the first quarter. However, a look at the numbers shows that
Capital One would have missed the target if not for some
aggressive accounting maneuvers that massively boosted profits.
By achieving the earnings goal, the options recipients --
including CEO Richard Fairbank -- no longer have to rely on a
stock price-based target to get their options early. To Capital
One skeptics, it is an indication of management's naked
self-interest at the expense of shareholders.
Here are links to the articles used for this newsletter.
http://news.bbc.co.uk/1/hi/business/3569743.stm
Credit card chaos in India
http://inhome.rediff.com/money/2004/apr/26capital.htm
Capital One set to launch credit cards
Raghuvir Badrinath in Bangalore
http://www.thestreet.com/p/_tsc/rmoney/petereavis/10156563.html
Capital One's Well-Timed Profit Surge
A Message from Rich to All Associates
Achieving Competitive Economics
April 26, 2004
Source: Rich Fairbank, Chairman and CEO
Capital One is Undergoing a Remarkable Transformation
Several years ago, we told the world that we were embarking on a quest
to become a world-class, diversified financial services company. Since
then, we've been on a journey to grow our existing businesses and take
our strategy into new markets. Our investments are paying off and our
vision of becoming a truly diversified company is coming into focus.
We've been moving our card business steadily upmarket, building
internationally and creating successful businesses in auto finance,
installment lending, small business, deposits and other areas. We
continue to excel at product innovation, marketing and credit risk
management. And, our brand has achieved near-universal recognition.
Remarkably, we're pulling off this transformation without skipping a
beat. Our business continues to deliver powerful earnings and record
profits.
We are well-positioned for continued growth and success. But, as we
diversify into markets with thinner margins, our investments and
operating costs become even more important.
The Competition is Fierce and Unforgiving
As we move toward our destination, we will be competing across the
board with some of the most sophisticated and capable competitors in
financial services - companies like Citibank, JP Morgan Chase/Bank One,
Bank of America and American Express.
The financial services industry is consolidating rapidly. Our
competitors are driving hard towards massive scale, leaner operations
and lower costs. The competition among the elite players is fierce and
unforgiving, and they won't cut us any breaks. To stay ahead of the
competition, we need to bring down our costs to fuel the growth and
innovation that are the hallmarks of Capital One.
We Must Become More Efficient
Earlier this year, I asked our senior leaders to take a hard look at
how they invest and spend our money and how we stack up against our
toughest competitors. Ultimately, I asked them to examine where their
businesses were headed and answer a fundamental question: "What
economics do you need to win in your markets?"
Our leaders have finished their assessment and will be communicating
with you today in greater detail about how their findings affect your
individual business and staff units. But, I wanted you to hear directly
from me where we are headed as a company.
The assessment showed what we intuitively expected. Our businesses need
to improve their cost positions to compete in the future against the
leading players in the financial services industry.
Overall, our costs run as much as 20 percent above those of our key
competitors. Over the next 18 to 24 months, we have to work together to
put our businesses in the best possible position to win in their
markets by bringing down our costs and making sure our investments
deliver the long-term payoffs we expect.
To make our economics competitive, we have to address each of our major
cost areas - operating expenses, marketing spend and investments in
growth businesses. Each of our business and staff units must step up
and contribute to reach our goals.
We Must Rigorously Manage Marketing and Investments
Marketing is a substantial component of our costs. We plan to become
even more efficient in how we spend our marketing dollars. We must make
sure that every dollar we spend on marketing has the right payoff down
the line.
We also intend to slow down or stop investments in businesses that are
not positioned to deliver appropriate returns, and invest more in
businesses with greater potential for growth and profitability. Each of
our businesses will have to compete internally for marketing and
investment dollars. Only the best opportunities will get funded.
We Must Reshape Our Workforce
We also must bring down operating costs. In part, we can do this by
identifying process improvements and increasing our overall
productivity.
Our operating costs are primarily made up of the compensation and
benefits we provide to our associates. In order to make substantial
headway on operating costs, we will need to reduce our internal
workforce over time through a combination of attrition, outsourcing and
job reductions.
As we take these steps, we must demonstrate compassion and sensitivity.
Reaching our economic targets will be worthless if we sacrifice our
culture and our Values in the process.
As much as possible, we will let the normal course of attrition do its
work. We can still actively recruit and bring down costs by simply
hiring fewer people than are leaving. Some groups, however, will need
to supplement attrition through a combination of outsourcing and job
reductions.
Each group will be affected differently. As we reduce our overall
workforce, some areas of the company will continue to grow and others
will stay flat or come down over time.
We expect that Capital One Auto Finance, certain Global Financial
Services businesses and Credit Risk Management will continue to grow.
These investments will help drive our diversified earnings in the
future.
Global Finance and Corporate Reputation & Governance plan to stay flat
in some areas and pull back in others to bring down operating costs
over time. These groups expect that they can meet their aggressive cost
targets largely through attrition.
Card and IT expect to reduce their costs primarily through the use of
outsourcing, along with efficiency gains and targeted job reductions.
These groups have been on the outsourcing path for a while. They must
continue to look for the right outsourcing opportunities where the cost
difference is compelling or outside suppliers have greater scale or
specialized expertise.
Over the past year, HR and Corporate Real Estate have been scaling back
their groups and reducing costs substantially. This direction will
continue as the demands of the organization change and their process
improvements drive greater productivity and efficiency.
We Must Live Our Values
The decision to reduce our internal workforce is one of hardest I have
ever made. I know that the lives and careers of dedicated associates
are affected when jobs are outsourced or eliminated.
While these are difficult challenges, it is imperative that we become
more disciplined in our investments and costs to drive our business
ahead. Ultimately, making sure that our business continues to innovate
and grow is the best thing we can do for our associates and
communities.
As we go forward, we must stay true to our Values. We must treat every
associate impacted by these changes with dignity and respect - they
deserve it and I won't tolerate anything less. Our leaders must
communicate openly and directly with impacted associates so that they
can make decisions and plans about the future. And, we must strive to
help impacted associates by providing transition services, retraining
assistance and financial support.
I am convinced that this is the right direction. We have tremendous
momentum around the company right now because our leaders have come to
precisely the same conclusion after looking at all of the facts.
Many companies fail to adapt to changing markets until it is too late.
As a result, they hit a wall and are forced to slash costs massively,
leaving a legacy of destruction in their wake. Capital One must never
put itself in the position of addressing costs reactively from a
position of weakness. We must be bold enough to tackle this issue
during the best of times when we can be thoughtful and measured in our
approach.
We can only declare success if our associates can look in the mirror,
and look at their leaders and peers, and feel proud of the way we
conducted ourselves. That is the standard I am holding out for myself
and our company as we move forward.
I believe that our company and our Values will emerge stronger as a
result of this experience. Our company will have a solid economic
foundation to drive our future growth and success. And, our Values will
guide us along the way. Ultimately, this journey will define who we are
and what we can be.
Thanks for your support.
http://news.bbc.co.uk/1/hi/business/3569743.stm
Credit card chaos in India
US credit card company Capital One has torn up its contract with Indian
call centre company Wipro Spectramind.
Action was taken after Capital One found out that Wipro staff had made
unauthorised credit offers, gifts and club membership to customers.
"Certain activities were not up to our standards" said a spokeswoman
for Capital One.
Angry staff at Amicus, the finance sector union, are calling for an
investigation into the case.
Wipro, based in New Delhi, is India's largest call centre. Staff were
extending the terms of special deals beyond their end dates and
offering levels of credit more than would normally be allowed.
Around 600 staff worked on the Capital One account, one of the biggest
for the company. So far 30 employees have been sacked, Reuters report.
Offshoring under scrutiny
Capital One denies that it will pull out of India altogether. It
confirmed that extensive investigations had confirmed that the issue
was limited to several individuals at a single site.
Other firms, however have taken some work away from India, including UK
based football pools company Littlewoods, computer manufacturer Dell in
Texas and investment bank Lehman Brothers.
Customers need not worry as this matter, Capital says, did not involved
compromised customer data.
Several unions are calling for action and have launched an independent
commission of enquiry into offshore call centres. They want the UK
Government and European Union to force offshoring companies to disclose
the country they are calling from.
http://inhome.rediff.com/money/2004/apr/26capital.htm
Capital One set to launch credit cards
Raghuvir Badrinath in Bangalore | April 26, 2004 | 09:06 IST
No official comments were forthcoming from Capital One on its plans for
India.
The US-based financial powerhouse, Capital One Financial Corporation,
is planning to enter the fast-growing retail financial sector in India
by launching its credit cards.
It is understood that the corporation is undertaking extensive market
research in India to tap the galloping popularity of plastic money. Its
strategy of extensively using information as a management tool and
Indian infotech capabilities can give it a very cost-effective business
model in India.
Capital One has appointed a country manager to look into various
aspects of launching financial products in the country. The company is
understood to have had detailed discussion with Visa and MasterCard for
affiliations here. No official comments were forthcoming from Capital
One on its plans for India.
Capital One India country manager Pratap Thumboochetty declined to
elaborate on its plans in India. The US headquarters also did not
respond to queries.
However, Visa International-South Asia deputy country manager Uttam
Nayak in a statement said: "Visa shares a long-standing and excellent
relationship with Capital One in the US and other markets around the
world. Visa is currently in discussions with Capital One, with the aim
of extending this strategic relationship to the Indian market and such
a tie-up will be beneficial to both Visa and Capital One as well as
Indian cardholders."
http://www.thestreet.com/p/_tsc/rmoney/petereavis/10156563.html
Capital One's Well-Timed Profit Surge
By Peter Eavis
Senior Columnist
4/27/2004 7:17 AM EDT
Click here for more stories by Peter Eavis
Capital One (COF:NYSE) BEARISH
Price: $67.68 | 52-Week Range: $37.69-77.67
Earnings jumped in the latest quarter.
One reason could be reserves management.
Top execs get a big options payday early.
Capital One (COF:NYSE - commentary - research) execs have given a whole
new meaning to the term "easy money."
Senior management at the go-go credit card company obtained a big slug
of stock options by surpassing an earnings-per-share target in the
first quarter. However, a look at the numbers shows that Capital One
would have missed the target if not for some aggressive accounting
maneuvers that massively boosted profits.
By achieving the earnings goal, the options recipients -- including CEO
Richard Fairbank -- no longer have to rely on a stock price-based
target to get their options early. To Capital One skeptics, it is an
indication of management's naked self-interest at the expense of
shareholders. After all, why wait for months and years on the stock
price -- something you can't control -- when you can cash in now by
putting out low-quality earnings that you have far more influence over?
The accelerated options grant "added insult to injury in a poor
earnings-quality quarter," says Bill Ryan, a consumer finance analyst
at Portales Partners, a New York-based brokerage. (Ryan rates Capital
One sell and Portales doesn't do investment banking for companies.)
Capital One didn't return a call seeking comment. Monday afternoon, the
stock slipped $1.58 to $67.27. It's down nearly 6% since first-quarter
earnings were reported after the close last Wednesday.
Grant's Tomb
Here are the facts about the options. A grant of 6.5 million options
was made in October 2001 to management execs. All performance-based
options under this grant were set to vest in October 2007. However,
they could vest early if one of two criteria were met.
First, the stock could hit a preset price, set at increasing levels
throughout 2004-07, for five trading days. For 2004, for instance, the
minimum price target is $83.87, which is 25% above current levels.
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