Discover Card Issuer Expects 1Q Loss, Boosts Credit Reserves

Discover cardsAlthough its credit delinquency rate may have leveled off, Discover Financial Services is boosting its reserves to cover loans deemed uncollectible by $305 million, and it expects to report a first-quarter loss of 22 cents to 23 cents per share.
Discover said the rate of borrowers becoming 30-days delinquent is estimated to be about 5 percent, a reduction of 25 basis points from the fourth quarter 2009.
“Based on current credit performance trends within its loan portfolio, the company believes that the amount of delinquent loan balances may have peaked in the fourth quarter 2009,” said the nation’s sixth-largest credit card issuer.
Analysts generally predicted 9 cents per share profit for Discover, far from the $.22- to-.23 per share loss estimated by the card issuer.
Discover said the increases in reserves against credit losses was the result of a “new analytical process that enhances management’s ability to estimate incurred losses on non-delinquent accounts.”
Discover projects that its first quarter net principal charge-off rate for its Direct Banking segment will be about 8.5 percent, up from 8.43 percent in the fourth quarter 2009.
Discover plans to report first quarter 2010 results after the close of trading on March 16.
Since its inception in 1986, Discover has become one of the most widely distributed credit cards, often winning customer satisfaction surveys along with bigger rival American Express. Both issue credit cards and process payments, and offer extensive rewards programs.
Discover offers personal and student loans, online savings accounts, certificates of deposit and money market accounts through its Discover Bank subsidiary.

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