IMGCAP(1)]
Discover Financial Services today reported net income of $432.3 million for the fourth quarter ended Nov. 30. That compares with a $56.5 million loss the company reported for the same period a year earlier. A $535 million after-tax income boost for the quarter from a $2.75 billion antitrust settlement Discover reached with Visa Inc. and MasterCard International earlier this year helped generate rosier results (CardLine, 10/28). Discover will receive the remainder of the payout over the next several quarters. Discover CEO David Nelms told analysts during a teleconference today that the difficult economy is likely to push card charge-off rates above 6% of managed card receivables in early 2009, and in a reversal of an earlier statement, Discover plans to apply for bank holding company status and seek funds from the government's bailout program. Loan-loss reserves for Discover's U.S. card segment during the quarter nearly doubled, to $1.1 billion from $584.7 million for the same period last year. Charge-off rates for the quarter jumped to 5.48% compared with 3.85% a year ago, while delinquency rates for accounts at least 30 days past due rose to 4.56% of managed card receivables compared with 3.58%. The segment held managed loans of $51.1 billion, up 6% from $48.2 billion for the same period a year earlier. Discover card-sales volume for the quarter fell 2.7%, to $22 billion from $22.6 billion. Card-sales volume for the fiscal year ended Nov. 30 increased 2% to $92.2 billion from $90.3 billion for fiscal year 2007. Discover's third-party payment volume for the quarter rose almost 39%, to $34 billion from $24.5 billion. The increase included $7 billion from Diners Club International, which Discover acquired this year. Discover also absorbed a $12 million loss during the quarter from its discontinued Goldfish card operations in the United Kingdom, which it sold to Barclays Bank PLC in March. Discover is taking a "conservative" approach toward growth in the tougher economic climate, Nelms told analysts. At a different conference with analysts last month Nelms told analysts that converting to a bank holding company would be an "unlikely" path for Discover (CardLine, 11/12). A Discover spokesperson says the company recently decided to apply to the Federal Reserve for bank holding company status to "maximize future liquidity."
