Question-and-Answer Session
Operator
[Operator Instructions] And our first question will come from Brad Ball with Evercore.
Bradley G. Ball – Evercore Partners Inc., Research Division
I wonder if you could elaborate a little on your comment regarding expense efficiencies and targeted cost saves going forward. Steve, you mentioned $ 10.5 billion OpEx for next year. What’s driving the improvement from the $ 11.1 billion this year outside of acquisition-related expenses? And then beyond that, what would be the magnitude of potential cost saves and where might they come from?
Stephen S. Crawford
Sure, happy to take that. So you’re right, we’re at — $ 11.1 billion is our forecast for 2013. If you think about some of the tailwinds we have, which we’ve talked about before, there’ll be $ 100 million reduction year-over-year because of PCCR and CDI. We’ve got the $ 100 million legal settlement that we disclosed this quarter, and we’ve got about $ 150 million of integration expenses running through this year. If you subtotal that, it gets you to about $ 10.75 billion. But there’s some other factors. Obviously, Best Buy leaving the system helps expenses, bringing on Beech Street hurts, and then we’ve also got to manage the inflationary pressures, regulatory investments, other business investments. So really, what that translates into is a few hundred million of real savings in 2014 to hit our target of approximately $ 10.5 billion. And the 2 areas we’ve talked about in the past are digital and third-party spend. But as Rich said, it’s really across the business, across the cycle, hand-to-hand combat on a daily basis.
Operator
Our next question comes from Sanjay Sakhrani with KBW.
Sanjay Sakhrani – Keefe, Bruyette, & Woods, Inc., Research Division
I got 2 questions, one on — one is data and one is for Rich. Steve, maybe you could talk about the pretax, pre-provision earnings guidance. Is that pretty much unchanged for 2014? And also could you just help us with what the impact is for Best Buy to the NIM next quarter as it goes away? And then Rich, I was just wondering if you guys are seeing any change in the propensity for the prime or sub-prime consumer and card to want to borrow.
Stephen S. Crawford
Yes, so there is no guidance for PPE in 2014. What we’ve discussed is an expense — operating expense guidance. With respect to how Best Buy adjusts out, we actually provided a schedule in the first quarter of this year that is very on top of the actual results. And as I mentioned, it’s about $ 170 million in revenue in the quarter, inclusive of held-for-sale accounting. But you can get even more detail if you go back and look at that schedule.
Richard D. Fairbank
Sanjay, we don’t see any sort of like quarterly trend in the propensity of prime or sub-prime customers to want to borrow. We’ve talked about the sort of the trend post Great Recession that has definitely seen very conservative bent with respect to borrowers, and this is matched by quite a conservative bent with respect to issuers as well. But it has led to, relative to the old days, some weakness relative to borrowing demand. But on the flip side of that, I think the way we keep in many ways getting surprised by how good credit is, is a reflection just of the conservatism of both customers and issuers, including Capital One, of course. But I think the industry is, and I think consumers are in a good place relative to the Card business. I think they — they’re cautious but they’re — I think they’re stepping up their spending activity, and I think the card industry competitively is in a pretty stable place. And in the balance of growth in credit and all things considered, I think it’s a pretty good place for the Card business, and I like how we’re positioned with the things we’re emphasizing and some of the things we’re avoiding and running off to continue to build even increasingly high-quality business and to start sometime next year, really, net growing even beyond the — some of the runoff.
Operator
We’ll go next to Ryan Nash with Goldman Sachs.
Ryan M. Nash – Goldman Sachs Group Inc., Research Division
Just 2 quick questions, one on Beech Street. You said it was net about $ 100 million across. Any sense of what — how we should think about the revenue impact in 2014? And then just a little bit longer term, just thinking about capital, clearly, your — the difference in your standardized and advanced, I think, it’s on the upper end of where we are in the industry. And given that the tests are starting to — the CCARs are starting to transition to a Basel III exam, how should we think about what’s going to govern your decision to return capital over the next couple of years? Given that the — you’re not going to exit the parallel run until 2016, should we think about the standard approach as the binding constraint for your ability to return capital over the next couple of years? Or when do you think we should make that transition to advanced?
Stephen S. Crawford
Yes, so the second question — we’ll come back to the first. The earliest we could enter — exit parallel run would be first quarter of 2016, and I think there are banks that entered parallel run 4 or 5 years ago that still aren’t out. So Basel III standardized, as I tried to mention in my comments, is clearly going to be the one for us to focus on for the foreseeable future. I’m sorry, the first question was? Oh, Beech Street. Yes, so importantly, I just want to make clear, what we did is we increased our guidance from $ 10.4 billion to $ 10.5 billion. That doesn’t mean it was $ 10.40 billion going to $ 10.50 billion, okay? There is some expenses that pushed us closer to $ 10.5 billion. And as you would expect, with that size acquisition, we’re not going to break down the income statement and tell you how that’s going to impact the business line item by line item.
Operator
We’ll go next to Ken Bruce with Bank of America Merrill Lynch.
Kenneth Bruce – BofA Merrill Lynch, Research Division
Rich, you mentioned that you’re seeing some additional — or you’re seeing pressure in the Auto segment in particular, can you elaborate that in terms of whether the competition you’re seeing in terms of underwriting is becoming just really loose? Or what is it about that aspect of the market that is — that concerns you and — obviously, your originations in that sector have been up. So I guess, how are you thinking about either backing away or how do you think about just the loosening standards and some of the pricing issues that you’ve mentioned in past calls?
Richard D. Fairbank
Yes. Well, Ken, we’re pretty obsessive about — and I appreciate your question. We’re actually extremely obsessive about the issue of cycle management. And for all the talk we’ve done over the years of information-based strategies and — to a segment of one really statistically predicting things, there is huge leverage, and we should never forget it in managing cycles. And we do it, both by looking at metrics but also thinking about the dynamics of competition and the nature of customer choices as well. So my big point I want to make about the Auto business is that it has moved from a lifetime best. And I really believe in our lifetimes, we probably won’t see an Auto business with such a confluence of positives sort of happening over the last few years. It has moved from lifetime best toward, if you will, the mean. But it has certainly not crossed over the critical inflection point where you’ll see us doing a lot of pulling back and raising red flags and that kind of thing. But the reason we’re emphasizing it so much is just to make sure our investors understand this journey from lifetime best to still quite a good place in the Card business. Looking at sort of underwriting and pricing, because what happens is industries don’t go to the mean and then beyond it, just all of a sudden that — it tends to happen sort of one variable at a time. So just looking at the metrics here, on pricing — I’ll talk both about sub-prime and prime. In pricing, the margins are healthy but slowly falling but certainly have ample room for well-above hurdle returns. In prime, the pricing is tight but it’s stable. And it’s probably — I think prime is pretty much at sort of an industry equilibrium, as a general statement, on the pricing side. The most critical credit metric is LTVs, and LTVs in both sub-prime and prime are stable and healthy. FICO scores and the choices people make and the types of loans people make at a particular FICO score is pretty stable in both sub-prime and prime. There is a loosening — there’s some loosening of terms. It’s still — the 72 months used to be kind of the outer bound in terms of terms, and there is some sizable growth of the 73-plus category, but it’s still a minority of all originations and we’re keeping an eye on that. But overall, I think what you’re seeing is a business that we’re still investing heavily, where we’ve been growing in and — but you’re also seeing a window into both our management of investors to show the dynamics of how portfolio profitability will naturally move but also to get our muscles developed for continuing to watch the dynamics in an industry like this one and all the others we’re in.
Operator
We’ll go next to Don Fandetti with Citigroup.
Donald Fandetti – Citigroup Inc, Research Division
Yes. Rich, I was wondering if you still have the full infrastructure for private label that you inherited from HSBC. Just trying to get a sense on sort of what the commitment there is. I mean, are you out there talking with retailers in front of exploration of deals? And do you have the capacity and desire to take down a deal of decent size if it were to come about?
Richard D. Fairbank
Don, we have both the capacity and the desire. One thing that was a real plus for us in the HSBC deal, although again, that deal was financially motivated, most importantly. The biggest strategic benefit of the HSBC deal was getting scale in the retail partnership space. And part of the problem if you don’t have scale is when one goes out on marketing calls, not only are they saying, “Show me all your references” kind of thing, but also, a lot of times, people want certain capabilities that are too expensive to build one retailer or one partner at a time. So the private label — we are moving our own partnership business onto the private-label platform from HSBC. It’s a good platform. It’s scalable, and we feel very good about that. We think they have a great list of partners, and we — all the attention has gone to the — our choice to move beyond Best Buy. But actually, we have a blue-chip partner list with Neiman Marcus and Best Buy and General Motors and a long list of retailers. And so we feel very good about that. We are absolutely focused on, in fact, growing this business. And as we’ve always said, this is an attractive business. It’s not about just who can be the biggest but it’s about selectively getting the best, the high-quality partners who are motivated to really build the franchise with a partnership deal and a contract that, in fact, can allow a win-win for both parties. So we are absolutely investing in this, we’re very optimistic about the prospects of this, and we’re happy to get on the other side of our integration now as we’ve pretty much finished now the integration with HSBC.
Operator
We’ll go next to David Hochstim with Buckingham Research.
David S. Hochstim – The Buckingham Research Group Incorporated
I wonder if you could just talk a little bit about any changes you saw in…
Jeff Norris
David, I’m sorry. It’s Jeff. We can’t hear you.
David S. Hochstim – The Buckingham Research Group Incorporated
I wonder if you could talk about any changes you saw in cardholder spending over the course of the quarter. And then since the quarter, have you seen any impact? And then, could you just repeat, I’m sorry, I missed it, but how many shares did you buy in the quarter and what price?
Richard D. Fairbank
David, I think cardholder spend patterns have been pretty consistent by our own observations here. Cardholder spending for Capital One and for the industry continues to grow at rates faster than overall retail spending. And so I would say it’s more of a continuation of strength that we have seen on our portfolio. Steve, you want to — the other question?
Stephen S. Crawford
Yes. I told you we bought about $ 300 million. We’re not going to disclose the price but there’ll be additional information in the 10-Q about our repurchase activity.
Operator
We’ll go next to Moshe Orenbuch with Crédit Suisse.
Moshe Orenbuch – Crédit Suisse AG, Research Division
Kind of 2 somewhat related questions. I guess, you mentioned that you’ve had strong growth in the rest of the card portfolio other than HSBC and the runoff of a couple of billion this year net and $ 1 billion in ’14. Seems like if you’ve had a couple of billion, $ 2 billion to $ 3 billion of gross growth and you’re ending up with that, it just seems if you add that to the Best Buy portfolio that half of the HSBC assets will have been gone by the end of ’14. Does that math make sense? And the second part of the question is, how do you think about your marketing spend, given now — given that there’s been that substantial runoff and then at the same time, you’re at an inflection point where it appears that some of your major competitors, who had been shrinking, are now at least stable, if not starting to grow again?
Richard D. Fairbank
So Moshe, with respect to the HSBC business and what is or has run off, we’ve given you a schedule of the run-off portfolio. What we call the run-off portfolio relates to the least-resilient parts of the business that we identified in advanced, and we have been running that off and that’s running right on schedule. And then, of course, you have the Best Buy portfolio. But the — beyond those very clear and calculate-able things, what I really want to share with you and — is the dynamics within our portfolio and within our choices. Because when we say we are seeing a lot of growth where we are investing in the Card business, we are investing in the transactor space, we’re investing in the revolver space and all places other than high balance revolver. And we’re poised, as we get to the other side of our integration with HSBC, to continue to invest more in developing the partnership business. The — but as we’ve said many times, our choice to avoid high balance revolvers is an important choice with respect to growth metrics because, of course — when — both with respect to the origination of customers who are high balance or the choice to take high balance customers we have and run them off. Those are pretty consequential with respect to asset growth. And our point that we’ve made consistently in these calls — the calls are we point out the things that we’re avoiding, and we’re doing that with an absolute eye on resilience. But beyond those choices, the things we’re investing in, we’re seeing lots of success, solid growth and, in fact, I think some growing momentum that can give us a little bit more growth potential down the road.
Operator
We’ll go next to Bill Carcache with Nomura Securities.
Bill Carcache – Nomura Securities Co. Ltd., Research Division
Can you talk about the trends that you’re seeing in peak loss rates across your card portfolio? And I guess, maybe if you could give a little bit of perspective just, absent a deterioration in economic conditions or a loosening of underwriting standards, what causes those peak losses to go up from where we are today. Any perspective on trajectory would be great.
Richard D. Fairbank
Bill, it’s sort of — if I understand you, I’m struggling a little bit with the concept of a trend and a peak loss rate because we’re at probably troughs of loss rates, if anything, everywhere across the Card business. But I think that — I think we all should prepare over time for some regression to the mean in the Card business. However, I think that also that while intuitively we’re at, and you can just look at pretty much all parts of our business, we were at historical lows in terms of loss rates in particular segments. This isn’t — I mean, I think also part of this reflects a new normal, a new normal reflecting the, frankly, more conservative choices that people are making in the Card business, ourselves included, and to a significant extent, enhanced by the conservatism that we see on the consumer. So intuitively, at some point, I think there should be regression to a higher level of losses in the Card business. But I think that our likelier outlook really is one of stability around this exceptionally strong credit position, and we all should internalize that, that a good part of that just reflects the power of conservative and rigorous underwriting by us and by the industry.
Operator
We’ll go next to Chris Brendler with Stifel Brokerage.
Christopher C. Brendler – Stifel, Nicolaus & Co., Inc., Research Division
So my question, Rich, is in the private label business. The CFPB, I think, originally quoted as targeting some of the teaser rate practices probably in a long time in the retail card business. And it sounded like from our discussions that you guys, in particular, were concerned about that and have gravitated away from that pricing strategy to one that’s more fair for the consumers. My question is, do you think that, that provides an opportunity for you as some of the traditional private-label lenders aren’t able to make that? And if you could give us any detail on the changes you’ve made to help offset the enormous benefit you see on the finance charges when a consumer lets the grace period expire.
Richard D. Fairbank
Yes. Chris, I mean, I think it was certainly noteworthy, the CFPB’s comments that they made regarding the private-label space. And I think like all the other places they are looking, they’re going to very rigorously and comprehensibly evaluate practices. We’ve invested a lot over the years to put ourselves in the position of taking a pretty high-ground position and the conservative choices with respect to practices. Where the CFPB was focusing their commentary with respect to the private-label space, particularly the same as cash products, is something that while they — that product exists in a few of our partners that we have, it is de minimis in its overall level at Capital One. It’s a pretty significant and pretty widespread practice in the private-label space overall. So we’ll have to see how that one plays out.
Operator
We’ll go next to Bob Napoli with William Blair.
Robert P. Napoli – William Blair & Company L.L.C., Research Division
Rich, you, I think, want to say — what you said is you’re comfortable on your strategic footprint. But with the capital you’re generating, and I know you’re returning and beginning to return and will be able to return a lot of capital to shareholders, but I just wondered if you are looking tangentially to that strategic footprint. One point you had an agreement to buy NetSpend years ago. So the prepaid space is an area where you don’t have much of a footprint, the gift card space, merchant acquiring, some of these new-wave merchant acquirers like Braintree, which is acquired by PayPal or agreed to be acquired Square. I just wondered if with the capital you’re generating and the card and payment space being as dynamic
[Audio Gap]
and I noticed a whole lot of Capital One employees at the Money2020 conference last week, what’s your thinking about and what you’re looking at tangentially to your current strategic footprint?
Richard D. Fairbank
Well, with respect to, when you’re referencing the acquisition space, our energy is focused on sustaining high returns and distributing capital. In the normal course of business, we look from time to time very selectively at opportunities like in partnerships and specialty commercial. There’s obviously a tremendous amount of activity going around the edges of banking and particularly, in the payment space. We are heavily investing people who understand what’s happening at the edges of that space and, most importantly, to prepare ourselves for digital leadership in the tremendously important area of just regular old banking. And so, to us, that’s not a quest to go buy things. That’s a quest to really be at the forefront and understand how that fast-moving space is evolving. Recruiting talent, a very, very extensive efforts to recruit native digital talent, not just banking people that happen to have worked in technology, and to make sure in this company that we can be digital and think digital and not get caught in sort of conventional wisdom in the business. So we have a lot of energy into it, but the energy is an organic energy and really focused on an imperative we have in the company to be a digital leader in a tremendously important evolving opportunity here.
Operator
And your last question this evening comes from Betsy Graseck with Morgan Stanley.
Betsy Graseck – Morgan Stanley, Research Division
Two quick ones, one is on prepaid. Could you give us a sense as to where you are in your thinking about your prepaid offerings?
Richard D. Fairbank
Okay, Betsy. We — we’re going at the prepaid space a little differently from some folks. As you know, we acquired the largest — the nation’s largest digital bank and the — many of the products and the very, very simple checking accounts and the whole business model from that side of the house is very overlapping with the prepaid space, and we’re generating our thrust into the space sort of on that side of the business.
Betsy Graseck – Morgan Stanley, Research Division
Okay. And then secondly — or separately, I should say, I just want to make sure I’m thinking about it right with the revenue margin. I know you’re not giving a forward view on it. But if we remove the $ 170 million from Best Buy this quarter, we end up getting to revenue margin of about 17.5%. And I just want to make sure, is that a fair margin to use as base and then adjust from there for normal seasonality going forward?
Richard D. Fairbank
Well, I don’t want to necessarily bless your exact calculation, but let me just comment about the revenue margin. So first of all, as I mentioned at the outset, that the third quarter had a partial quarter’s impact of Best Buy held for sale. So if you adjust for that, the underlying revenue margin is 17.2%, and this is up from the adjusted second quarter revenue margin of 16.8% and it’s especially driven there by seasonality. If you think across a number of years about our revenue margin, in 2011, our revenue margin was around 17%. Then we brought in HSBC and we said, actually — and they had a revenue margin around 17%. And adjusting for those purchase accounting impacts, in 2012, the revenue margin in card was around 17%. Looking at 2013, after adjusting for the Best Buy impacts and deal-related items, we end up with a revenue margin sort of in the low 17s, as the benefits from the removal of Best Buy’s low-margin business are roughly kind of offset by some franchise improvements that we announced. In other words, taking some air out of the revenue margin for — with respect to customer practices. Going forward, there will be, of course, many factors affecting the revenue margin. But I think in the — the biggest puts and takes will really be the removal of the Best Buy portfolio that will benefit our run rate margins, all else being equal, because Best Buy’s margins are materially lower than our portfolio average. And we, of course, have the impact of franchise enhancements that work in the opposite direction, as well as some runoff of the very highest-margin HSBC business that we bought. So that horse race is probably a pretty even race over time. So in some ways, the more things change, the more they stay the same, but we’re not here to forecast revenue margin. I’m just giving you some the elements on how to think about that, Betsy.
Jeff Norris
Well, thanks, everybody, for joining us on the conference call today. Thank you for your interest in Capital One, and please remember that if you have additional follow-up questions, the Investor Relations team will be here this evening to answer them. Thanks, and have a great evening.
Operator
Ladies and gentlemen, this does conclude today’s conference. We thank you for your participation.