-
Discover Financial Services' fiscal fourth-quarter profit jumped a better-than-expected 47% as the credit-card company reported improved revenue and growth across its loan products.
December 15 -
Discover Financial Services has agreed to purchase $2.5 billion of private student loans from Citigroup Inc., as the lender continues diversifying beyond its main credit card business.
September 2 -
Credit card company Discover Financial Services has been a frequent buyer in the past year as it tries to expand beyond its traditional card lending and network roots. But now it is developing new businesses internally, including a new online checking account it plans to launch at the end of 2012.
September 22
Despite a lagging economy, Discover Financial Services' jack-of-all-trades strategy seems to be paying off.
The company posted strong gains in its fourth quarter, which ended Nov. 30. It continues to increase its total loans and expand in private student lending.
"There are a lot of different areas of growth for them, and that's a very unique aspect of their business model," says Sanjay Sakhrani, an analyst with Keefe, Bruyette & Woods.
In addition to its credit card and network businesses, the company has been building up its private student loans and mortgage origination units over the past year through several acquisitions.
That buying spree may be over, but Discover will keep an eye out for new deals, the company's chairman and chief executive, David Nelms, said on a call with analysts Thursday.
"We would continue to look for opportunities given our capital position and our desire to build out … but I would also say we would continue to be very careful on that," Nelms said.
"I would not say that any acquisition is even required to continue fulfilling our objective, but if the right thing is available at the right price and terms, and it fits our strategy, then of course we'd be interested," he added.
In the meantime, all eyes remain on the company's growing private student lending business. Concerns about the viability of the overall student loan market loom, as some have started tracking a rise in delinquencies thanks to the lagging economy and continually high unemployment.
But for the moment at least Discover's portfolio remains strong. The chargeoff rate on its private student loans portfolio was just 0.14% in the fourth quarter.
"There's a lot of noise in the student market in general that's driven by what's happening on the federal side, where you are seeing losses and where you are seeing different underwriting criteria," said Roger Hochschild, Discover's president and chief operating officer in an interview with American Banker on Thursday.
Discover takes a more "disciplined" and "conservative" approach to its lending, Hochschild says. It often requires parents to co-sign student loans and carefully evaluating the books of loans it has acquired.
The Riverwoods, Ill., company said its private student loans portfolio grew by $6.3 billion in the 12 months that ended Nov. 30, including the acquisition of $3.1 billion in loans in the first quarter and $2.4 billion acquired in the fourth quarter.
It now has a total of $7.3 billion in private student loans on its books.
On the call, Nelms noted that Discover hit its $1 billion student loan origination target in the 12 months.
"We think we can do a bit more than that" next year, Nelms said.
Overall, Discover's earnings rose 47% year over year, to $513 million, or 95 cents a share.
Revenue net of interest expense grew 13% year over year, to $1.8 billion.
The net principal chargeoff rate for all loans fell to 2.81% in the fourth quarter, from 6.58% a year earlier.
