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By Stephen Bernard
Associated Press
POSTED: 09:48 a.m. EST, Dec 18, 2008
NEW YORK: Discover Financial Services said today it returned to profitability during its fiscal fourth-quarter, thanks to a payment from a lawsuit settlement.
While Discover was profitable during the quarter, it faced mounting card losses as more customers fell behind on payments. Nearly all credit card lenders are facing mounting losses as more customers fall behind on payments amid the ongoing recession.
Riverwoods, Ill.-based Discover earned $432.3 million, or 89 cents per share, during the quarter ended Nov. 30, compared with a loss of $56.5 million, or 12 cents per share, during the year-ago period.
Discover's results were bolstered by an $863 million payment received as part of a $2.75 billion settlement of an antitrust lawsuit with Visa Inc. and MasterCard Inc. The payment, received on Oct. 27, boosted profit by $535 million after taxes. Discover said it will receive the remaining funds in four $472 million installments quarterly in 2009. The lawsuit claimed MasterCard and Visa harmed Discover's business by preventing their member banks from issuing credit cards for Discover's network
Analysts polled by Thomson Reuters, on average, forecast earnings of 13 cents per share for the quarter. Analysts estimates do not always include gains and charges.
Shares of Discover rose $1.04, or 12 percent, to $9.62 in premarket trading.
Discover's charge-off rate grew to 5.48 percent of total loans from 3.85 percent a year ago and 5.2 percent during the prior quarter. Charge-offs are loans written off as not being repaid. Based on current portfolio trends and the broader economy, Discover expects the charge-off rate to increase above 6 percent in the first quarter.
SunTrust Robinson Humphrey analyst John Stilmar predicted earlier in the week that Discover would face peak charge-offs of 8.75 percent in the middle of 2010 based on a projected unemployment rate of 8.5 percent.
The delinquency rate for loans 30 days past due increased to 4.56 percent from 3.58 percent a year ago and 3.85 percent during the third quarter.
Because of the rising delinquency and charge-off rates, Discover continued to ramp up its provision for loan losses. The provision increased $521 million to $714.2 million during the fourth quarter.
Income from Discover's third-party payments business — which processes ATM and debit transactions and other banks' cards — rose sharply during the quarter to $20.6 million from $7.6 million during the final quarter in 2007. The boost was due to the addition of Diners Club International, which was acquired from Citigroup Inc. earlier in the year.
Discover's third-party payments business processed $34.04 billion in transactions during the quarter.
Average total loans during the quarter increased to $50.71 billion from $47.38 billion during the same quarter last year.
For the full year, Discover earned $927.8 million, or $1.92 per share, up from $588.6 million, or $1.23 per share, a year earlier.
NEW YORK: Discover Financial Services said today it returned to profitability during its fiscal fourth-quarter, thanks to a payment from a lawsuit settlement.
While Discover was profitable during the quarter, it faced mounting card losses as more customers fell behind on payments. Nearly all credit card lenders are facing mounting losses as more customers fall behind on payments amid the ongoing recession.
Riverwoods, Ill.-based Discover earned $432.3 million, or 89 cents per share, during the quarter ended Nov. 30, compared with a loss of $56.5 million, or 12 cents per share, during the year-ago period.
Discover's results were bolstered by an $863 million payment received as part of a $2.75 billion settlement of an antitrust lawsuit with Visa Inc. and MasterCard Inc. The payment, received on Oct. 27, boosted profit by $535 million after taxes. Discover said it will receive the remaining funds in four $472 million installments quarterly in 2009. The lawsuit claimed MasterCard and Visa harmed Discover's business by preventing their member banks from issuing credit cards for Discover's network
Analysts polled by Thomson Reuters, on average, forecast earnings of 13 cents per share for the quarter. Analysts estimates do not always include gains and charges.
Shares of Discover rose $1.04, or 12 percent, to $9.62 in premarket trading.
Discover's charge-off rate grew to 5.48 percent of total loans from 3.85 percent a year ago and 5.2 percent during the prior quarter. Charge-offs are loans written off as not being repaid. Based on current portfolio trends and the broader economy, Discover expects the charge-off rate to increase above 6 percent in the first quarter.
SunTrust Robinson Humphrey analyst John Stilmar predicted earlier in the week that Discover would face peak charge-offs of 8.75 percent in the middle of 2010 based on a projected unemployment rate of 8.5 percent.
The delinquency rate for loans 30 days past due increased to 4.56 percent from 3.58 percent a year ago and 3.85 percent during the third quarter.
Because of the rising delinquency and charge-off rates, Discover continued to ramp up its provision for loan losses. The provision increased $521 million to $714.2 million during the fourth quarter.
Income from Discover's third-party payments business — which processes ATM and debit transactions and other banks' cards — rose sharply during the quarter to $20.6 million from $7.6 million during the final quarter in 2007. The boost was due to the addition of Diners Club International, which was acquired from Citigroup Inc. earlier in the year.
Discover's third-party payments business processed $34.04 billion in transactions during the quarter.
Average total loans during the quarter increased to $50.71 billion from $47.38 billion during the same quarter last year.
For the full year, Discover earned $927.8 million, or $1.92 per share, up from $588.6 million, or $1.23 per share, a year earlier.
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