Spending, Charge-Offs Lead to Mixed Picture for Capital One, Discover Financial
October 24 2017 - 7:37PM
Dow Jones News
By AnnaMaria Andriotis
Credit-card issuers Discover Financial Services and Capital One
Financial Corp. reported Tuesday that rising interest rates helped
results in the third quarter as consumers took on more debt.
The rising rates collected by the lenders helped to offset the
year-over-year increases in charge-offs at both companies as well
as the growing amounts they are setting aside to cover for future
loan losses.
Capital One's profit for the third quarter increased 10% to
$1.11 billion, or $2.14 a share, from $1.01 billion, or $1.90 a
share, in the year-ago period. Profit beat analyst estimates, while
earnings per share came just shy of analysts' estimates of
$2.15.
When adjusted to exclude certain items, including restructuring
charges related to "realignment" of its workforce and the closing
on its purchase of the Cabela's credit-card portfolio, Capital One
said it reported earnings of $2.42 a share. Revenue came in at
$6.99 billion, up 8% from a year prior, beating analysts'
estimates.
Capital One shares rose about 2% in after-hours trading Tuesday,
while Discover's shares were inactive.
Discover's profit for the quarter totaled $602 million, down 6%
from year prior, or $1.59 a share, compared with $1.56 a year
prior. Both figures beat estimates as did revenue that came in at
$2.53 billion, up 10% from a year prior.
Net charge-off rates, which measure loan losses, largely
improved for both companies from the prior quarter but worsened
from the year-ago period. The third quarter is often when
charge-offs are lowest for card companies. Both Capital One and
Discover loan performance figures are generally indicators of
consumers' ability to pay back their debts in part because they
lend to a range of borrowers and aren't largely focused on the
affluent.
At Discover, the credit-card net charge-off rate totaled 2.80%
in the third quarter, up 0.63 percentage point from year prior. The
company increased provisions for loan losses by 51% from a year
prior to $674 million, suggesting it expects losses to grow.
Discover's earnings press release said charge-off rates increased
in part because of an oversupply of credit that is available to
consumers.
At Capital One, domestic credit-card net charge-off rate
increased 0.90 percentage point year-over-year to 4.64% and
provisions for overall credit losses rose 15% to $1.83 billion.
Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com
(END) Dow Jones Newswires
October 24, 2017 19:22 ET (23:22 GMT)
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