Capital One received credit card termination notice from Walmart

On April 6, Capital One (COF) received from Walmart (WMT) a notice of termination of the credit card partnership agreement under which Capital One is the exclusive issuer of Walmart’s private label and co-branded credit card program in the U.S., the company disclosed in a regulatory filing. On April 7, Walmart filed a lawsuit in the Southern District of New York seeking a declaratory judgment that it has the contractual right to terminate the Card Program early, it added. Capital One "disputes that Walmart has any right to terminate the Card Program mid-stream and will vigorously defend our contractual rights in court," it said in a filing. As of December 31, 2022, the Card Program consisted of approximately $8.3B in ending outstanding loan balances and the allowance for credit losses related to the Card Program portfolio was approximately $314M. The allowance for credit losses as well as the capital held against the Card Program portfolio are lower than they would be otherwise due to the loss sharing arrangement agreed to as part of the Card Program, according to Capital One. For the year ended December 31, 2022, the Card Program produced approximately $214M in net income after taxes. "Any future financial impacts will depend on the timing and final resolution of this matter, including the related litigation, and future management actions," Capital One said. If a court finds that Walmart is permitted to terminate the Card Program early, we would expect the resulting transfer of the card portfolio to a new issuer to occur no earlier than January 2025. The CCPA also requires that Walmart or one or more new issuers pay to Capital One a purchase price that is equal to par for the private label accounts, and equal to fair market value for the co-branded accounts, in each case, that are part of the Card Program. Capital One is entitled under the CCPA to retain any premium above 1.5% of the par value of the co-branded accounts upon sale.