Find the best credit card offers online.Last June 18, Discover Financial Services, one of the major credit card companies in the U.S. saw a positive increase in New York trading, a rise of 4%. Earlier, the company had stated that the increase on loan losses for the second quarter was slower than forecast. Overdue loans rate had also dropped.
The slow down in loan losses and rate of overdue loans may be because of the tax refunds American consumers usually get during the first quarter of the year. Traditionally, consumers used these refunds to pay off credit card and loan debts which is why most credit companies expect higher earnings during that time. However, David Nelms, Chief Executive Officer of Discover said that the improvements on the rate of delinquencies may not be just seasonal.
Like most credit companies in the U.S., Discover has been having a hard time keeping profitable in the current economic climate. The rate of unemployment in the country reached 9.4%, the highest it has been since 1983. Consumers, seeing a drop in available cash, have been unable to keep up with their credit card payments as a result. Discover had seen write-offs reach record levels and the company had forecast an 8% growth in write offs by this quarter but, surprisingly, it slowed down to an encouraging 7.79%.
Commenting on the numbers during an interview, Neims said, “I would have expected the seasonality benefit to get swamped by the higher unemployment rate, and that didn’t happen this quarter”.
However, the economic climate of the country still remains bleak and Discover has a long way to go. Moshe Orenbuch, analyst for Credit Suisse AG recently commented that should the unemployment rate continue to grow, a second wave of earning losses is likely to follow. Last June, the president also said during an interview that he is expecting the unemployment rate to grow beyond 10%.
So far, Discover has been lucky. Its loan losses have been relatively less destructive than what other credit companies are experiencing due to MasterCard and Visa settlement payments from a legal dispute. Discover agreed to a $2.75 billion settlement payment for an antitrust case it was involved in with the two largest credit card networks in the world. It is also one of the credit companies to take part of the Troubled Asset Relief Program of the Treasury last March. Some analysts are saying that Discover’s luck may not last that long.
“It is likely that this picture will turn a bit darker. There will be no legal- based financial settlements to fall back upon.”, Celent senior analyst Red Gillen recently stated. He said that Discover’s recent earnings is a “murky mix”.
