Discover posts loss in 1Q, misses expectations

Credit card company Discover Financial Services said Tuesday that it posted a loss for the first three months of the year as it bolstered the amount of money it set aside to cover continuing defaults by consumers.

Discover said it lost $104 million, or 22 cents per share, for the three months that ended Feb. 28. That compares with a profit of $120.4 million, or 25 cents per share, in the period a year earlier.

The issuer of Discover and Diners Club cards said it set aside an additional $305 million in the quarter to cover loan losses, a move that puts it in better shape for the future but pushed its books into the red.

Also skewing the comparison with last year's first quarter was a one-time $475 million payment Discover received then from Mastercard Inc. and Visa Inc. to settle an antitrust lawsuit. Excluding that payment, Discover lost 41 cents per share in last year's first quarter.

Analysts polled by Thomson Reuters, who typically exclude one-time items, on average predicted Discover would earn 12 cents per share.

Shares of Discover fell 24 cents to $15.06 after hours. They gained 10 cents to close the regular session at $15.30.

Discover's net charge-off rate was 8.51 percent in the first quarter, up slightly from the rate of 8.43 percent the quarter before. That rate reflects the share of all the company's outstanding loans that are at least 180 days late and that the company no longer expects will be repaid.

The company's over-30-day delinquency rate, a good predictor of future charge-offs, eased slightly to 5 percent from the fourth quarter of 2009.

Discover believes delinquent loan balances peaked at the end of last year. It expects a charge-off rate for the second quarter of 8 percent to 8.5 percent.

Discover also said it received regulatory approval to repay the $1.2 billion in federal bailout money it received last year. As part of the repayment process, the company said it will issue $350 million of new debt during the second quarter.

There were some positive signs in the results.

_ Card sales volume rose 5 percent to $22 billion.

_ Expenses were down 15 percent from the previous year.

_ Deposit balances originated through direct-to-consumer and affinity relationships were $14.8 billion, up from $12.5 billion the prior quarter.