Discover Financial Services said failed customer loans will climb beyond 7% in the second quarter.

The Riverwoods, Ill., card company, which added $521 million to its provision for bad loans in the fourth quarter, said during an investor conference Thursday that it expects to add more to its reserves this quarter.

Discover won approval to become a bank holding company last year, joining American Express Co. in a rush for government funds and retail deposits in response to stalled capital markets.

Card lender losses are rising as unemployment pushes more people to fall behind on their debt. The United States lost almost 2.6 million jobs last year.

The rising losses for Discover are cushioned by settlement payments from MasterCard Inc. and Visa Inc. Discover agreed in October to accept $2.75 billion from Visa and MasterCard to resolve an antitrust case.

Discover said it expects to post $293 million of after-tax settlement proceeds each quarter of this year.

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