Sloppy Quarter For Discover As It Preps For Spin Off

Discover Financial Services reported its second fiscal quarter results earlier this week, the last time the card network will disclose quarterly results before its planned June 30 spin off from parent Morgan Stanley. Discover had net income of $209 million in the quarter, down 39 percent from $343 million the same period a year ago when low bankruptcy filings reduced losses. Discover also recorded this year $20 million in pretax costs related to the spin off.

Discover had total card receivables of $51.4 billion as of May 31, up 6 percent. Sales volume tallied $25.4 billion during the quarter, up 6 percent from second quarter 2006.

Discover’s U.S. card segment accounted for $46.9 billion of total receivables while the International Card group accounted for $4.6 billion.

The managed 30+ day delinquency rate for the entire card portfolio was 3.12 percent, a record low for Discover. The managed net charge-off rate was 4.23 percent, up 93 basis points from 3.30 percent a year ago. The U.S. Card group reported an over 30-day delinquency rate of 2.97 percent, down from 3.20 percent a year ago. Net chargeoffs in the U.S. rose 82 basis points to 4.00 percent. 

The International card group saw over 30-day delinquencies of 4.69 percent, up from 4.27 percent, and net chargeoffs ballooned to 6.50 percent from 4.57 percent.

The outlook for the second half of 2007 includes growth in U.S. Card sales and receivables though loan losses will “gradually increase as bankruptcies trend” higher, Discover reported. The Riverwoods, Ill.-based card issuer and network estimated it will record another $30 million in spin-off costs, and spend more on marketing in the second half.