Discover Financial Services' (DFS) fiscal third-quarter profit
dropped 74% following a year-earlier legal gain, but earnings
handily topped analysts' expectations as loan problems eased
notably from the spring.
Shares were up 3.5% in recent premarket trading
Discover, both a lender to cardholders and a processor of
transactions, continued to benefit from falling delinquencies and
lower loan-loss provisions. Card-sales volume rose for the
fourth-straight quarter. Meanwhile, the industry faces increased
consumer protective measures, including rules cutting late-payment
fees that could cut issuers' revenue by billions annually.
Friday, the company agreed to acquire private student-loan
operations of Student Loan Corp. (STU) for $600 million and $4.2
billion of the company's assets for 91.5 cents on the dollar. The
company has been ramping up its business in personal and private
student loans, seeking revenue growth.
For the quarter ended Aug. 31, Discover posted a profit of
$260.6 million, or 47 cents a share, down from $577.5 million, or
$1.07 a share, a year earlier, which included an 82-cent gain from
its antitrust deal with Visa Inc. (V) and MasterCard Inc. (MA).
Analysts polled by Thomson Reuters most recently predicted
earnings of 38 cents for the latest quarter.
Discover's card business saw profit jump 81% as card-sales
volume rose 5%. Net charge-offs, or loans the company doesn't
expect to collect, dropped to a better-than-expected 7.18% from
8.4% a year earlier and 7.97% in the prior quarter. Delinquencies
of 30 days or more were 4.16%, down from 5.11% a year earlier and
4.52% in the second quarter.
Provision for loan losses dropped on an adjusted basis to $712.6
million from $1.09 billion and $724.3 million, respectively.
Last month, fellow lender-and-processor American Express Co.
(AXP) said its latest-quarter earnings nearly tripled as customers
increased spending by 16%.
-By Matt Jarzemsky, Dow Jones Newswires; 212-416-2240;
matthew.jarzemsky@dowjones.com