Discover Financial Services' (DFS) fiscal third-quarter earnings more than tripled on payments from an antitrust settlement along with a 14% drop in costs.
Meanwhile, the credit-card company saw charge-offs rise while 90-day delinquencies showed a rare pullback from the prior quarter.
Shares recently rose 4.37% premarket to $15.99. Having doubled from a low in March, the stock is down 12% from a year earlier through Wednesday's close.
The credit-card industry is reeling from credit losses as the recession pushes the U.S. unemployment rate to its highest level in a quarter century. Hoping to offset those problems, Discover has cut jobs and marketing spending.
For the quarter ended Aug 31, the company posted a profit of $577.5 million, or $1.07 a share, compared with a profit of $180.1 million, or 37 cents a share, a year earlier. The latest quarter included $287 million from the antitrust deal with Visa Inc. (V) and MasterCard Inc. (MA). Payments will continue for several more quarters.
Pretax earnings at the company's U.S. card segment more than tripled to $913 million amid the antitrust gain. On a managed basis, which includes securitized loans still managed, Discover's loan-loss provision was $924.4 million, down 17% from the previous quarter and up 23% from the prior year.
Charge-offs rose to 8.39% from 7.79% and 5.2%, respectively and the 30-day delinquency rate rose to 5.1% from 5.08% and 3.85%. However, the 90-day rate slipped to 2.6% from 2.73% last quarter, although it was up from 1.88% a year ago. A slowdown in credit-card delinquencies will likely encourage investors that late payments and write-offs will be reaching their peak soon.
Credit-card sales volume declined 7%, highlighting continued cutbacks in consumer spending.
In June, Fitch Ratings lowered Discover's individual rating, an assessment of intrinsic creditworthiness excluding any external support. By becoming a bank-holding company, Discover got $1.2 billion in funds under the Troubled Asset Relief Program; it hasn't said when it will pay the money back, but may use some funds from a $500 million stock offering in July.
-By Joan E. Solsman, Dow Jones Newswires; 212-416-2291; joan.solsman@dowjones.com
