CORRECT: Discover 2Q Jumps As Delinquencies Hit All-Time Low
23 Giugno 2011 - 7:39PM
Dow Jones News
Discover Financial Services (DFS) said the number of customers
who are a month late on their credit card payments hit an all-time
low during its second quarter, helping more than double the card
company's profit.
The record-low in credit-card delinquency rates, which the
company said covers a 25-year period, highlights the sharp
turnaround in Discover's consumers' ability to pay off credit-card
debt. The rate fell to 2.79% of all credit-card loans from 4.39% a
year earlier.
And as the drop also came with a 1% increase in credit-card
balances and a 5% increase in total loans--which includes all types
of loans and not just credit cards--Discover sounded hopeful on the
health of its consumer and its own business.
"While the U.S. economy has yet to show significant
strengthening, we are confident that we can continue to achieve
profitable growth in all of our lending businesses," said David
Nelms, chairman and chief executive.
Shares were up 1% at $23.76, one of the few stocks rising in the
Standard & Poor's 500 Index Thursday, as the results beat
analyst expectations. Year to date, the stock is up 29%.
Discover, both a lender to cardholders and a processor of
transactions, has posted stronger results in recent quarters as
improving credit trends have meant the company can set aside less
for loan losses, and even pull money out of its rainy-day fund, as
it has for each quarter over the past year.
For the quarter ended May 31, Discover reported a profit of $600
million, or $1.09 a share, compared with a prior-year profit of
$258 million, or 33 cents a share. Analysts polled by Thomson
Reuters expected earnings of 75 cents a share.
Revenue net of interest expense rose 4.6% to $1.74 billion,
topping the $1.7 billion analysts expected.
The results were partially boosted by a $401 million reduction
to the loan-loss reserve, as Discover said its outlook improved
once again.
Net charge-offs, or loans the company doesn't expect to collect,
fell to 4.42% of all loans from 7.97% a year earlier. Delinquencies
of over 30 days were 2.68% of all loans, compared with 4.52%.
Provisions for loan losses were $176 million, down from $724
million a year ago.
The increase in total loans in the quarter reflected a higher
holding of private student loans, after Discover bought Student
Loan Corp.'s (STU) business late last year. It also saw a large
jump in personal loans.
Last month, the company said it would pay $55.9 million to
acquire the mortgage assets of Home Loan Center, a unit of Tree.com
Inc. (TREE), calling the move a "low-risk, low-cost way" to get
into the home loans business. Discover, which has been searching
for new ways to boost loan revenue, plans to originate home loans
that it will sell in the secondary market.
-By David Benoit and Mia Lamar, Dow Jones Newswires;
212-416-2458; david.benoit@dowjones.com
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