By Aparajita Saha-Bubna Of DOW JONES NEWSWIRES NEW YORK -(Dow Jones)- Discover Financial Services (DFS) expects net charge-offs to near 6% in the first quarter, said David Nelms, the company's chief executive, at the Merrill Lynch Banking & Financial Services Conference in New York on Tuesday.
Nelms confirmed the company's estimate of credit-card loans considered to be non-collectible to approach 5.5% in the fourth quarter.
The higher estimates underscore a growing realization the troubles that started last year in souring home mortgages to borrowers with shaky credit have spread beyond to encompass borrowings and consumers of all stars and stripes.
An increasing number of financially strapped Americans falling behind on their credit-card payments confirms a trend of continuing losses for issuers, leaving little hope for a reversal in the next four quarters.
Nelms also said at the conference that Discover Financial would focus on deposits as a funding source and would keep credit-card loans on the company's balance sheet instead of selling these securities in the asset-backed market. This market, a vital funding source for credit-card issuers, has come to a standstill amid the current credit freeze.
Discover has $2.6 billion in asset-backed debt - securities made up of pools of credit-card loans - maturing in the fourth quarter. These maturities make up about 10% of the company's total book of asset-backed securities.
As of the end of Aug. 31, Discover had total deposits of $26.96 billion.
The chief executive also said that the company wouldn't add new customers in the current credit environment and will instead focus on its existing borrower base.
Discover Financial's provision for loan losses increased $336 million, or 80%, from a year earlier in the third quarter, as more borrowers fell behind on payments. The loan-loss provisions were up 30% from the earlier quarter.
When it posted quarterly results last month, the company also said it is likely to squirrel away more funds in the fourth quarter than it did in the preceding one as the credit crunch makes it difficult for the company to refinance debt.
For the quarter ended Aug. 31, Discover, which was spun off from Morgan Stanley (MS) in July 2007, posted net income of $180.1 million, or 37 cents a share, down from $202.2 million, or 42 cents a share, a year earlier. Shares of Discover closed Tuesday off 8.4% to $10.05, and but were recently trading at $10.80 after hours.
-By Aparajita Saha-Bubna, Dow Jones Newswires; 201-938-2137; aparajita.saha-bubna@dowjones.com
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(END) Dow Jones Newswires
November 11, 2008 16:33 ET (21:33 GMT)

Publié le 11 novembre 2008 Copyright © 2008 Dowjones