Discover Financial CEO: Loan Loss Rate In 7.5% Range In 2Q
19 Marzo 2009 - 6:21PM
Dow Jones News
Discover Financial Services (DFS) expects credit card loan
losses to be at or around 7.5% in the second quarter, Chief
Executive David Nelms said during a discussion of the company's
quarterly earnings with analysts and investors.
"Things have moved rapidly in terms of unemployment," Nelms
said.
The U.S. unemployment rate was 8.1% in February, the government
reported earlier this month, the highest in 25 years.
Nelms said the company would forecast only one quarter out
because the economic environment is "more uncertain" than it
usually is.
The "base expectation is losses will continue to rise (but) we
would expect slower quarter over quarter increases," he said.
The Riverwoods, Ill.-based company reported in the first quarter
rising delinquencies and charge-offs, that is, card loans that are
deemed uncollectible. Discover wrote off 6.48% of its card loans,
up from 5.48% in the fourth quarter and 4.33% a year ago.
Its reserve for credit losses increased $707 million, or 113%,
from a year earlier. The large increase in reserve stems from
higher delinquencies and $3 billion of card loans that the company
brought on to its balance sheet after bonds made up of these loans
matured.
The company's U.S. card business earned $167 million in the
first quarter, down 55% from $375 million a year earlier.
For the fiscal first quarter ended Feb. 28, Discover posted net
income of $120.4 million, or 25 cents a share, up from $81.2
million, or 17 cents a share, a year earlier.
The latest results include an after tax $297 million gain
related to an antitrust settlement. Net income a year ago included
a $158 million charge on discontinued operations. Excluding this
charge, Discover's earnings from continuing operations fell by half
compared with a year earlier.
Discover shares recently traded at $6.84, down 40 cents or 5.2%.
So far this year, its stock has lost about 26% of its value. Unlike
most of its peers, which either issue plastic or process the
transactions, Discover does both.
-By Aparajita Saha-Bubna, Dow Jones Newswires; 617-654-6729;
aparajita.saha-bubna@dowjones.com