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Chapter 1 customer data breach frightens investors



  FILE PHOTO: The Capital One logo and ticker appear on a NYSE New York floor screen
FILE PHOTO: The Capital One logo and ticker appear on a New York Stock Exchange (NYSE) floor screen in New York , USA, May 21, 2018. REUTERS / Brendan McDermid / File Photo

30. July 2019

By David Henry

(Reuters) – Capital One Financial Corp's assurances that a larger data breach would have a limited impact on customers or profits failed to convince investors on Tuesday, with the bank's shares dropping 5.9%.

Capital One said the day before that 1

06 million people who had applied for credit cards in the US and Canada were exposed to their personal information.

The bank expects the event to cost $ 100-150 million this year, some of which may be covered by substantial insurance. It also confirmed advance guidance that operational efficiency would be improved.

However, investors are wary, given the extent of the breach, the reputation influence on Capital One and the likelihood of additional costs, analysts said.

"We are skeptical of management's implication that a question of this magnitude will not affect future revenues and efficiency expectations," Evercore ISI analyst John Pancari wrote to clients.

Analysts pointed to legal fees and possible regulatory penalties that Capital One might face.

On Tuesday, two federal lawsuits were brought before federal courts, and New York and Connecticut state attorneys each said their offices would begin trial. A few lawmakers also made statements criticizing Capital One or asking for tougher privacy laws.

The breach stemmed from Capital Wed's decision to store data in Amazon.com Inc's cloud device, called Amazon Web Services (AWS), where a former employee named Paige Thompson managed to access the data. She was charged with computer fraud by federal prosecutors in Seattle and made her first court appearance Monday.

Amazon said that its cloud storage device was not compromised in any way. Instead, it attributed the breach to a "misconfiguration" outside the cloud.

Capital One attributed the problem to a failure in its own infrastructure. The bank has been an enthusiastic adopter of external cloud services, with top executives showing up at AWS events or highlighting the benefits.

Amazon shares closed 0.7% lower on Tuesday.

Capital One did not have an immediate answer to Reuters questions about its technology vulnerabilities on Tuesday. But analysts said the reliance on a third-party vendor would come under scrutiny.

The incident "raises questions about how best to police and protect client information," said Morgan Stanley analyst Betsy Graseck.

"Today's revelation is reminiscent of investors in the trust that financial institutions place on clients facing clients and highlights the risk of outsourcing parts of the business that the client faces," Graseck wrote in a report.

She expects the shares to remain under pressure as investors question whether bank has other cloud-based vulnerabilities and whether there will be additional regulatory control and spending.

(Reporting by David Henry in New York; Additional reporting by Supantha Mukherjee and Kanishka Singh in Bengaluru and Jonathan Stempel in New York; Writing by Lauren Tara LaCapra; Editing by Nick Zieminski and Matthew Lewis)


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