Discover 3rd-qtr profit falls 11 percent
NEW YORK (Reuters) - Discover Financial Services (DFS.N), the fourth-largest credit card network in the United States, posted an 11 percent decline in net income as provisions for loan losses increased and, as the global credit crisis deepened, it said delinquencies would rise further.
The company said on Thursday that quarterly net income fell to $180 million, or 37 cents a share, from $202 million, or 42 cents a share, a year earlier.
Its provision for loan losses more than doubled to $364.8 million from $145.8 million a year ago as net charge-offs rose.
Discover's net principal charge-off rate, an annualized measure of bad debt write-offs, climbed to 4.76 percent in its fiscal third quarter from 3.23 percent a year earlier, while the 30-day delinquency rate rose to 3.58 percent from 2.81 percent a year before.
Chief Executive Officer David Nelms said in an interview the company expected delinquency rates and debt write-offs to rise in 2009. He said Discover had tightened its credit standards and closed inactive accounts to reduce loan losses.
Nelms said the company would likely set aside more money for loan losses in coming quarters, but added he does not expect Discover to post net losses even in the current financial climate.
Managed loans grew 6 percent to $50 billion compared to last year.
Revenue net of interest expense increased to $1.25 billion from $1.16 billion a year earlier.
"While the loan growth could be viewed as opportunistic, we are concerned that consumers are increasingly tapping credit cards as a last resort as other types of credit become less available," Michael Taiano, associate director of Sandler O'Neill, wrote in a research note.
Discover's shares have fallen close to 30 percent in the last year, but have recovered some ground since hitting a 52-week low of $11.17 last week.
The shares closed down 2.6 percent at $14.82 on the New York Stock Exchange.
(Reporting by Lilla Zuill, additional reporting by Dan Wilchins and Juan Lagorio, editing by Maureen Bavdek)
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