Discover Financial Services said it expects to report a fiscal first-quarter loss and increase its loan-loss reserve.
The Riverwoods, Ill., company said last week that it will record a pretax increase of $305 million in its loan-loss reserve for the quarter, bringing its reserve coverage to about 12 months of losses. Discover's fiscal first quarter ended Feb. 28.
Including the impact of the reserve addition, Discover expects to report a per-share loss of 22 to 23 cents. Analysts had recently projected a 9-cent profit.
Discover also estimates that the chargeoff rate will total 8.5%, up from 8.43% in the fourth quarter. Delinquencies of 30 days are expected to total about 5%, down from 5.31% in the fourth quarter. The company said delinquencies may have peaked last quarter.
Unlike most other card companies, which either issue plastic or process the transactions, Discover and American Express Co. do both. In addition to the interest Discover earns on its credit card loans, a chunk of its revenue comes from fees it charges banks and merchants to process card payments.
Discover and other credit card issuers are coping with sweeping legislation restricting certain fees and rate increases, which will bite into income. To compensate, issuers are scaling back on credit.