Discover Financial Services Inc.'s (DFS) fiscal third-quarter net earnings more than tripled from a year ago, bolstered by a legal settlement and lower expenses.
But the company also said it expected losses from souring card accounts to rise next quarter.
The quarterly results reported Thursday morning come as the credit card industry is reeling from credit losses stemming from higher unemployment and a bleak economic outlook. The U.S. unemployment rate rose to 9.7% last month, and most economists believe it is likely to rise further. Cash-strapped card users are increasingly falling behind on payments and cutting back on credit-card spending.
Card issuers are also coping with sweeping U.S. legislation that will take a bite out of their income.
For the quarter ended Aug. 31, Discover posted net income of $577.5 million, or $1.07 a share, up from $180.1 million, or 37 cents a share, a year earlier.
The latest results include an after-tax gain of $287 million related to an antitrust settlement. The company will get another payment related to this settlement.
The company's shares recently traded at $15.73, up 41 cents, or 2.68%. The stock is within striking distance of its 52-week high of $17.70, reached last September.
Unlike most other card companies, which either issue plastic or process the transactions, Discover and bigger rival American Express Co. (AXP) do both. Therefore, in addition to the interest Discover earns on its credit-card loans, a chunk of its revenue comes from fees it charges banks and merchants, such as grocery stores or gas stations, to process card payments.
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