Discover's Credit Card Defaults Up, 4Q Profit Down

DiscoverDiscover Financial Services, issuer of the Discover cards, today reported a 16 percent drop in profit for its fourth quarter, with climbing credit card defaults playing a part in its bottom line.
Discover – the sixth-largest credit card issuer – reported net income of $371, or 63 cents a share, for its fourth quarter ended Nov. 30, down 16 percent from $444 million, or 89 cents a share, in the same period last year. The results were bolstered by an after-tax gain of $285 million from the final installment of an antitrust settlement with Visa and Mastercard.
The Illinois-based company said its charge-off rate, also referred to as defaults – card loans deemed as uncollectible – climbed up to 8.43 percent in the fourth quarter, from 8.39 percent in the third quarter.
The 30-day delinquency rate on managed loans rose to 5.31 percent, from 5.1 percent quarter-over-quarter. Discover shares are up 72 percent for the year-to-date period.
Discover Card sales volume declined 1 percent from the prior year to $22 billion.
“The increase in both the net charge-off rate and delinquency rate was due to higher levels of consumer bankruptcies and unemployment partially offset by a higher mix of student loans,” Discover said in its statement. “The managed net charge-off rate for the first quarter of 2010 is expected to be between 8.4 percent and 8.9 percent.”
David Nelms, Discover’s chairman and chief executive officer, said results this quarter represent a “stronger than expected credit performance.”
“We were very pleased with the stability of our sales volume, our expanded merchant acceptance and the continued growth of our direct-to-consumer banking business, Nelms said.”For the full year, we were profitable even excluding the antitrust settlement proceeds, and are closing out 2009 with strong capital levels and a strong foundation that positions us well for future growth.”
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