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Wells Fargo (WFC), the nation's largest mortgage lender, plans to eliminate 700 more jobs as fewer borrowers are looking to refinance their mortgage loans.
February 27 -
The Riverwoods, Ill., company is the second large private student lender in two weeks to announce plans to enter the long-moribund refinancing market.
January 24 -
Discover Financial Services (DFS) rode credit card loan growth in the fourth quarter to earnings of $602 million, an increase of nearly 12% over the same period in 2012.
January 23 -
The credit card company sees an opportunity to capture market share as the demand for refis slows and other lenders burdened by losses on bubble-era second mortgages scale back.
July 24
The flagship credit card business at Discover Financial Services (DFS) is riding high. Loan growth is solid, losses remain low, and investors seem satisfied.
But of course Discover is not just a credit card company. The Riverwoods, Ill., firm spent much of the last seven years diversifying its business by adding personal loans, student loans, home loans and a deposit-taking bank. Credit cards accounted for 93% of the company's loans in 2009, but were down to 81% last year.
Some of Discover's newer business lines, including student loans and home loans, are facing challenges, company executives acknowledged Thursday during a briefing for analysts.
Meanwhile, Discover's outlook for its decades-old credit card business continues to improve. The company lowered the long-term target for its credit card chargeoff rate by half a percentage point, to a range of 3.5%-4.5%.
"The credit environment continues to feel very benign," Chief Financial Officer Mark Graf told analysts. "We do not see a cyclical turn in credit during the next 12 months."
Here are four more takeaways from Thursday's meeting with analysts:
Government Investigations Are a New Cause for Concern.
Discover, which only entered the mortgage business two years ago, has largely escaped the fallout from postcrisis probes.
The $79 billion-asset company
That may be about to change. Discover disclosed this week that the Consumer Financial Protection Bureau is looking into some of its student loan servicing practices. The firm also announced that the Federal Deposit Insurance Corp. has identified certain potential deficiencies in Discover Bank's anti-money-laundering program.
"It's [in the] very early days," Graf told analysts when asked about the FDIC's concerns. "We are working through this process with the regulators in a very constructive fashion."
Expect Discover to Build its Checking Business in 2014.
A year ago Discover
Discover plans to launch the checking account to the entire market this year, Chief Executive Officer David Nelms said Thursday.
"We do expect to offer it more aggressively this year," he said. "And even more aggressively in future years. So we're excited about it."
The checking account is part of a push by Discover to fund more of its business through deposits. In addition, because Discover operates an online bank, the checking account gives the firm a chance to attract younger customers, Nelms said.
Discover Picked a Tough Time to Get into the Mortgage Business.
Discover launched its home loan business in the late innings of the refinancing boom.
Now that the refi pipeline has dried up, the company says it is paring back its home-loan work force, though officials did not say Thursday how many jobs are being cut.
"I would acknowledge that this is a challenging time to be in the business," Nelms said.
Moreover, a Discover presentation Thursday described mortgages as a low-growth business that also features a low return on equity.
The company does have higher hopes for its
Discover's U.S. Debit-Card Network Is Struggling.
While Discover has a much smaller debit-card network than Visa (NYSE: V) and MasterCard (MA) do, the upstart gained ground in 2012, as Discover benefited from new routing rules.
But last year, after
U.S. debit volume growth on Discover's Pulse network was 0% in 2013, while MasterCard saw a 6% increase, and Visa enjoyed a 9% jump, according to a Discover presentation.
Discover executives said Thursday they're trying a number of strategies to compete with the big guys, including allowing PIN-less transactions on purchases under $50.
They acknowledged that 2013 was a challenging year but also sought to put a positive gloss on the debit network's struggles. "I view that as a lot more upside," Nelms said.